The first six months in 2016 have seen 1,100 merger & acquisition (M&A) and private equity deals totaling USD 38 billion, about 10 percent growth year-on-year in value terms, says Prashant Mehra, Partner at Grant Thornton India sharing latest happenings on the deal street with CNBC-TV18.
The most interesting trend, though, according to Mehra, is the change in mix between M&A and private equity with the former alone seeing a 33 percent increase in value terms YoY at USD 28 billion. Private equity on the other hand has dipped to USD 8.4 billion from USD 12.4 billion last year, he says.
"Private equity has been struggling with exits. However, I think the next big opportunity for private equity would be alternate financing which is to back large corporate for driving consolidation in their respective industries," he says.
He expects some significant movements of private equity investments in manufacturing and retail and consumer industry in the near future.
Below is the transcript of the interview.
Q: Deal street has picked up, what are the big trends and quantum of deals that we have seen in the last month?
A: Six months to 2016 have been quite exciting on two accounts. One, we have clocked over 1100 deals contributing about USD 38 billion.
What has been interesting is that this itself is about 10 percent growth in value terms from last year. However what is really interesting is in the change in mix between M&A and private equity. M&A itself has contributed about USD 28 billion which is about 33 percent increase in value from last year.
Cross border has been almost flat, so the key driver has really been the domestic M&A deals with some very large acquisitions in the manufacturing and core sectors to with consolidation which is the Reliance Aircel merger, the two cement deals - the Nirma Lafarge deal as well as the Jai Prakash deal have been significant contributors to deal values.
Private equity has gone down. Last year it was about USD 12.4 billion, this time it is just about USD 8.4 billion which is USD 4 billion less than last year.
As far as sector trends are concerned, the core sectors continue rake in high deals whether it is manufacturing, telecom, pharma, all these have contributed over USD 20 billion to deal values. However as far as their private equity space is concerned most of the money which is about USD 4 billion or so has come from start-ups and IT/ITeS and the BFSI space.
Q: One of the things PE action was actually tepid due to high market valuation pushed up by liquidity. Now with markets showing some weakness are we going to see private equity action pickup?
A: Private equity has been struggling with exits. However I think the next big opportunity for private equity would be alternate financing which is to back large corporate for driving consolidation in their respective industries. With the absence of acquisition financing available in India and Indian corporate balance sheets doing well but not too well to shuffle out the money for a large acquisition, I think private equity backing would be primary there.
With all factors looking up, the startup IT/ITeS sector kind off tepid now. I think we are going to see some significant movements of private equity investments in manufacturing and retail and consumer industry.
Q: What according to you are the top deals of recent time and the bug theme on deal street?
A: The flavour has clearly been domestic M&A. Within domestic M&A consolidation, within consolidation again core sectors consolidation. We have had some consolidation in telecom which is Reliance Aircel merger, we have had again two large deals in the cement manufacturing space - the Nirma Lafarge transaction and the other has been in Jai Prakash Industries. So, these three really make chunk of the domestic M&A growth there.
I think we are going to see a similar trend in the next quarter or so until we reach the end of the calendar year.