2012 the year of M&A deals, says Grant Thornton

Excerpts from Reporter's Diary on CNBC-TV18 Watch the full show »

Due to the current economic downturn, Grant Thornton India sees 2012 as the year of mergers and acquisitions for Indian corporates. "Downturns are always good for M&As because there is a need for consolidation and cost cutting," said Harish HV, speaking exclusively to CNBC-TV18.

He goes on to say that we will see more inbound deals than outbound, as was the case the past few years, because growth prospects in the rest of the world are pretty low. "With the Vodafone tax case settled, it further settles whatever fears there were on tax," he added.

However, he says that more deals will be seen in the midsize space and that there won't be too many big ticket deals. "But going forward, considering what is happening in the telecom space, we could see bigger ticket there," he said.

Below is an edited transcript of his interview with Elan Dutta. Also watch the accompanying video.

Q: How would you assess January's performance as far as deal street goes and also why you are calling 2012 the year of M&As?

A: January has been a good month for M&As; as you correctly said 91 deals against 68 that we saw in the previous year. We are calling 2012 as the year of M&As basically taking off from what Professor Jagdish Sheth quoted at one of our conferences. He believes this year is going to be a global year of M&As because of the economic factors. Downturns are always good for M&As because there is a need for consolidation and cost cutting.

In India, the case for consolidation has been there for many years. If you look at the way M&A has progressed over the years, Indian corporates today consider it to be very much a part of everyone's corporate strategy. 10 years ago, if you asked someone about M&As, they would probably say it's only a small percentage.

We have just completed a survey which we are releasing in a couple of weeks where bulk of the participants believe that M&A is a core part of the corporate strategy and they are looking to increase volumes in this year. That's why I thought this year would be the year of M&A.

Q: M&A is a part of core strategy, but which segment is really indulging in M&As? Is it just the mid market segment because in your report you mention no really big ticket deals so far?

A: Big ticket deals come may be six or seven times in a year and by ticket deals I mean over USD 1 billion, but the regular volume keeps happening all the time. This month we haven't seen any billion dollar deals, therefore the volumes are high, but values would jump up the moment you see multi-billion dollar deals.

In the past years we have seen multi-billion dollar deals in telecom typically and with what is happening there, may be a little later this year we would see bigger ticket deals in the telecom space too.

Q: As far as inbound versus outbound goes, inbound seems to be wining this time?

A: Last year the clear victor was inbound, but the last 2-3 years it used to be outbound. I would bet this year also would be the year of inbound because the growth prospects in the rest of the world are pretty low and there is a lot of cash sitting on balance sheets of companies, particularly in the west, and they would be looking to acquire companies outside and India is probably a great destination for them to come and buy up companies.

With the Vodafone case also getting settled, whatever fears there were on the tax are also gone. So I would see this year again inbound more than outbound.