2012 to witness more M&A activities: Survey

Merger and acquisition (M&A) activities are likely to witness an increase this year and outbound deals will be the flavour of the season as overseas targets look attractive amid global economic uncertainties, says a survey.

According to a survey by global consultancy firm Grant Thornton, Indian companies are likely to take the advantage of relatively lower valuations in the backdrop of global economic uncertainty.

The survey was conducted over the last quarter of 2011 and is based on from about 100 responses covering corporates.

As many as 19% of respondents believe the global uncertainty and fears of recession will make overseas companies attractive acquisition targets, the survey said.

"While the European debt crisis could weigh on in the early part of 2012, making for potential outbound targets at depressed valuations, it would be interesting to see how cross-border actions with the US unfolds, given the limited activity seen in 2011 coupled with positive developments on its economic outlook for 2012," Grant Thornton India Partner and Practice Leader, Valuation Services, Srividya C G said.

Meanwhile, the increased activity is also expected on the domestic front as 51 per cent of respondents are bullish on the Indian economy itself and expect M&A activities to be driven by stronger fundamentals, greater availability of finance options and improved stock markets.

In 2011, India Inc announced M&A deals worth USD 44.61 billion through 644 transactions.

Segment-wise, the pharmaceutical sector would dominate both domestic and cross border activities, while manufacturing is expected to come a close second in 2012, the survey said.

Expectations of heightened M&A activities in the pharma sector is mainly driven by factors like impending patent cliff in the US, rising attractiveness of India as a low-cost R&D destination and increasing number of Indian firms getting Abbreviated New Drug Application (ANDA) approvals.

The banking, financial services and insurance (BFSI) sector is also likely to witness significant domestic M&A activities, while IT & ITeS is expected to be an active sector on the cross-border front, Grant Thornton said.

Aviation and retail are the other sectors to look out for in 2012, as the government is opening up these or increasing the cap for FDI.

"With a few regulatory changes on the anvil (FDI relaxation, government supporting cross-border deals and the like), strategic alliance and acquisitions will continue to dominate in 2012, though, there is expected to be an increase in mergers or restructured M&As in comparison to the previous years," Grant Thornton India Partner, Transaction Advisory Services, Sridhar Venkatachari said.

There have been several changes on the regulatory front in the form of revised takeover code; notification of merger provisions by the Competition Commission of India.

The merger control provisions of the Indian Competition Act 2002 took effect on June 1, 2011.

This makes the notification of the M&A transactions, which meet certain thresholds, mandatory. In addition, the provisions also state that such M&A deals will be required to take a clearance from the Competition Commission of India.

There have also been some significant changes in the SEBI regulations, commonly referred to as the "Takeover Code".

Moreover, the recent Supreme Court verdict on Vodafone's USD 2.20 billion tax liability by removing the high level of ambiguity and a significant hurdle is likely to encourage more cross-border transactions involving Indian businesses/assets, Grant Thornton said.