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Companies slow down on foreign acquisitions

Focussed more on inbound & domestic deals

Domestic companies seem to be shying away from foreign acquisitions with outbound deals seeing a 35 per cent drop last year.

In 2014, there were outbound deals worth $5.9 billion (117 deals), a drop of 35 per cent from $9.2 billion in 2013, even though the number of deals grew by 43 per cent.

However, there was acceleration in the value of inbound deals which surged to $11.8 billion in 2014, a 35 per cent rise compared to the 2013 value of $8.7 billion. The value of domestic deals in 2014 increased by 189 per cent over 2013 with over 20 deals valued at over $100 million each, according to the Grant Thornton’s 10th annual DealTracker report.

The M&A activity last year was dominated by inbound and domestic segments which together contributed for over 80 per cent of the total M&A values. The total number of merger and acquisition deals in the country rose to 1,177 in 2014, the highest ever in a decade.

The value of merger & acquisition (M&A) and private equity deals stood at over $50 billion in 2014 against $38 billion through 947 transactions in 2013.

“The focus was more on inbound and domestic deals as economic activity is picking up. Companies had bad experiences in the past over their foreign acquisitions and now financing is a challenge and so there is a drop in outbound deals, says Harish HV, partner Grant Thornton India.

He is expecting that pharma & healthcare, IT & ITES will continue to see more M&A activity and also energy and natural resources sectors, while E-commerce will witness both private equity investments and M&A.

Another key driver behind deals was overleveraged companies finding ways to cut debt or companies hiving off non-core businesses or assets.

Even private equity space was buzzing with activity as there were PE deals worth $12 billion (604 deals) in 2014 compared to $10 billion (450 deals) in 2013, an increase of 23 per cent.

There were more than 20 investments of over $100 million each.

The IT and ITES dominated PE activity as it contributed 43 percent to the total PE values with E-commerce continuing to play a significant role in garnering PE investments, the report said.

Some of the major M&A deals during the year include Sun Pharma acquiring 100 percent stake in Ranbaxy Lab for $3.2 billion, TriZetto Corp’s acquisition by Chennai-based Cognizant Technology for $2.7 billion in the IT space and the Kotak-ING Vysya merger for $2.5 billion in the banking sector.

The article appeared in the Financial Chronicle. The article can be found here.