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Corporate Oct 15, 2012

M&A activity slumps in July-Sept, but PE deals pick up

By Sourav Majumdar

The July-September quarter has some more bad news for mergers and acquisitions, with latest figures showing a 34 percent decline in M&A deals compared to the same period the previous year. The third quarter slump was largely driven by a fall in cross-border deals, according to Dealtracker, the regular study put out by Grant Thornton.

However, the third quarter of the calendar year 2012 did witness some large deals, particularly the ONGC Videsh outbound investment of $1 billion, Infosys's Lodestone acquisition and GMR Energy's stake in the GEMS reverse merger with United Fiber of Singapore.

PE deals totalled $2.2 billion, with 91 deals taking place during the period. This compares favourably with 90 deals totalling $1.87 billion in the same period the previous year.

While overall M&A activity showed a decline, private equity deals, however, picked up, showing a 16 percent upswing driven by large deals like the Bain Capital investment in Genpact of a hefty $1 billion, Flipkart's $150 million fund-raising and Ashoka Concessions $150 million deal. Significantly, the IT and ITeS sector continued to dominate the PE deal space, accounting for 59 percent of deal activity, chiefly on account of the Genpact deal and others in the e-commerce sector.

But despite the rather gloomy figures, analysts say the reform push will help, going forward. Says Raja Lahiri, partner, transaction advisory services at Grant Thornton: "Given the recent government announcement around reforms as well as the step towards re-evaluation of the GAAR regulations, the deal sentiment appears to be coming back, which would definitely help to increase deal activity."

According to the Dealtracker data, the third quarter saw 203 deals across M&A, PE and QIP, totaling $7.12 billion, compared to $9.30 billion with 238 deals in the same period in 2011. There were 31 outbound deals in the third quarter this year, totaling $2.75 billion, while the number of inbound deals stood at $0.77 billion over 24 deals, a sharp 71 percent decline over the previous year in value terms.

PE deals totalled $2.2 billion, with 91 deals taking place during the period. This compares favourably with 90 deals totalling $1.87 billion in the same period the previous year.

Oil and gas, engineering, real estate, IT and ITeS were the top sectors in M&A, while on the PE side, other than the overwhelming bias towards IT and ITeS, the other major sectors were infrastructure management, travel and tourism and pharma, biotech and healthcare.

by Sourav Majumdar

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