Mergers and acquisitions (M&A) seem to be the flavour of the season in India this year with reports of more than two potential deals hitting headlines every day, but over 80 per cent of these do not actually fructify.
According to a study by international M&A deals tracking firm Mergermarket, India has emerged as Asia-Pacific’s second-biggest target after China in terms of official or unofficial intentions expressed for takeover deals from across the world this year.
However, the conversion rate — measuring the proportion of news headlines actually converting into deal announcements — is the second-lowest for the country in the region.
India was the target for as many as 561 potential merger and acquisition deals in the first seven months of 2007, trailing China with 824 potential deals. This translates into a daily average of about four deals in China and 2.6 deals targeting India during the 212 days between January and July this year.
However, the study says the number of final deals was just 95 for Indian companies (one deal in more than two days), giving a conversion rate of just 17 per cent — the second-lowest in Asia-Pacific after 15 per cent for Taiwan.
Restrictive policies
Mergermarket said India has emerged as a key region for actual and potential M&A activities, but issues like restrictive FDI policies were hindering the momentum.
“Restriction on foreign direct investment and limited capital account convertibility are limiting deal flow. Important sectors such as banking and retailing remain off-limits to foreign acquirers,” it said.
In India, three biggest sector for potential deals were industrials and chemicals space (118), telecom, media and technology (88) and financial services (76). In terms of announced deals during the period, 21 were recorded in industrials and chemicals space, 15 in telecom, media and technology and 12 in financial services sector.
The study mentioned that it was clear from the current activity in India that international players were “attempting to get around FDI restrictions by buying minority stakes in local businesses or by setting up joint ventures with local partners — precursors to fully fledged M&A deals which could happen as and when the local regulatory environment relaxes.” Like India, Mergermarket noted, restrictive barriers to M&A were hindering deal completion in China as well, even though the deal activity was surging with increased interest from international players.