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Apr 09, 2013, 06.41 PM IST | Source: CNBC-TV18

M&A dips; Europe still holds potential: Grant Thornton

Raja Lahiri, partner - Transaction Advisory Services, Grant Thornton, says that this year the M&A activity has increased in value terms. As far as outbound is concerned, people are looking at Europe. But the overall M&A picture and private equity (PE) deals are down.

Raja Lahiri, partner - Transaction Advisory Services, Grant Thornton, says that this year the M&A activity has increased in value terms. As far as outbound is concerned, people are looking at Europe. But the overall M&A picture and private equity (PE) deals are down. 

"Many interesting assets are available in the European and American region and hopefully with some momentum coming in we will see some action," says Lahiri.

Also read: Mkt ready for weak Q4 results; upgrade seen in H2FY14: UBS

Below is the edited transcript of his interview to CNBC-TV18.

Q: The Mergers and Acquisitions (M&A) picture does not looks good in Q1, isn’t it?

A: The total M&A picture and private equity (PE) deals are down. We are at USD 4.5 billion of M&A this year. This year there has been an increase in M&A activity as far as value is concerned compared to last year. It is largely driven by one large inbound transaction in the pharma space but in the PE space it is down by 39 percent compared to last quarter. The overall slowness of the macro is creating an impact on both M&A and PE space as well.

Q: You mentioned that the inbound transactions have been skewed by one particular transaction but there has been so much talk about Corporate India looking outside, looking beyond borders because of how difficult it is getting to do business in India. How the picture does looks in terms of outbound deals and do you expect the numbers in outbound deals to go up significantly through the year?

A: As far as outbound is concerned, people are looking at certain economies like Europe. However, from an outbound perspective debt is not pretty cheap, raising of debt is difficult as well as fund raising is not easy. Large corporate groups are looking at outbound quite selectively because the fund situation is not that great. Sectors like IT, ITeS in terms of power, natural resources and mining would be sectors to watch out for.

I think many interesting assets are available in the European and American region and hopefully with some momentum coming in we will see some action. However, till date we haven’t really seen much outbound activity so far.

Q: We saw private equity transactions also drop dramatically. Besides the fact that there is this general malaise in the Indian economy what seems to be bothering private equity because the conversations that I am having with people is the lack of exit options and the tax constraints and the tax and the regulatory environment seems to be weighing in on private equity when it comes to investing in India?

A: From a private equity perspective one of the key issues the industry is possibly facing is about exits. So, it is about returns to investors which is primarily the important aspect of private equity. So, exits are become difficult because of the initial public offering (IPO) market and the inbound story getting a knock down is obviously impacting the exit scenario.

However, if you look at the deal scenario where the money is going into, if you look at the private equity perspective the money is going into certain interesting sectors like renewable. Despite all of this being said, we saw Government of Singapore Investment Corporation (GIC) investing USD 150 million in Greenko in the renewable energy space. We also see interest in the banking and financial services space. So, there will be selective investments, however what we would see is exits being a key thrust this year for funds.

What we are seeing also from a deal momentum perspective and couple of things that we see is management buyouts and secondary transactions being creating management majority stake funds buying out would be the focus of this year. Blackstone picked up stake of 50 odd percent plus stake in a cement company. So, management buyouts and leverage buyouts could see some interesting dynamics this year.

Q: So you mean it is not so much the general economic slowdown, but other issues which were impacting both inbound and outbound transactions and it really has to do with the constraints on both the exit options, the tax constraints that we are facing and an adversarial hostile climate that seems to have been built up around doing business here?

A: Correct. There are much deeper factors here, but again, I remain positive because some of the regulations that have happened especially in certain sectors, like foreign direct investment (FDI) are positive steps.

I hope these things gathering momentum as we move along this year. In the pharma space Mylan picked up stake in Strides assets in India for USD 1.8 billion. So, selectively one will see some large transactions on and I think that is very important for us from an economic perspective.

However, some deeper factors needs to be resolved, but overall I would see if some of these steps are gradually taken into consideration and implemented, the climate should improve and we would hopefully see more deal activity going forward this year.

 


 

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