India M&A deals jump 64% to $14.7bn in H1 2015

   

The value of deals announced in India in H1 2015 hit $14.7bn, 64% higher than the same time period last year. New research from global law firm Linklaters shows that there were 225 deals announced in the first two quarters of 2015, with the average deal size valued at $64.4m, compared to an average deal value of $28m during the same period in 2014.

Pharmaceuticals, banking and alternative energy were the most targeted sectors in the first half of 2015, attracting 21 deals worth $8.5bn.

Foreign investment into India

The research also shows growing international investor confidence in India this year as inbound M&A activity is up by 6% compared to H2 2014 with the average deal value increasing by 24% to $43m. Compared to the same time period last year, the volume of inbound deals in the first half of this year is slightly lower, down by 10%, but the value of the average deal value has increased by 6.9% from $46m.

 Commenting on the trends, Savi Hebbur, Corporate partner at Linklaters, says: “As investors waited for the result of the elections, in the run up, the economy was shrouded in uncertainty as a number of deals were put on hold. However, since then, we’ve seen a slow but steady resurgence in interest and confidence in the market. It also seems that government pro-business reforms aimed at making India more attractive to overseas investors such as the liberalisation of foreign investment into the defence sector are also having an impact.”

 Sushil Jacob, Corporate counsel at Linklaters, says that whilst international investors are expected to continue doing deals in the pharmaceutical and e-commerce sectors, the recent announcement to raise the cap on foreign direct investment in the insurance industry to 49% could also lead to a jump in deals in the sector.

The largest interest in Indian M&A has come from investors in the US. With 39 deals totalling $1.4bn in the first six months of this year, the US tops the list of overseas acquiror of Indian companies. This is followed by two countries with favourable tax treaties - Mauritius with seven deals totalling $1.01bn and Singapore with 12 deals totalling $711m.

Jacob notes that “private equity investors, sovereign wealth funds and strategic investors are looking to do large acquisitions in India and so, for the right deal, they are willing to allocate the capital. India is a promising market and there are some really exciting deals in the pipeline – 2015 could shape up to be a standout year for mergers and acquisitions.”

Taking a cautious approach to outbound M&A

The research also shows how strategic Indian companies have been in their overseas acquisitions. With 38 deals totalling $640.43m this year, compared to 41 deals totalling $6bn during the first half of last year, it seems Indian companies have taken a cautious approach when considering outbound acquisitions as they instead focus on deleveraging their balance sheets. A clear example of this was when Suzlon Energy, one of the world’s largest wind-turbine makers, sold its German subsidiary, Senvion for $1.16bn earlier this year, to help deal with its debt.

However, the average deal value for outbound M&A deals increased by 63% in H1 compared to H2 2014. Commenting on the trend, Klaus Hoenig, Corporate partner at Linklaters, says “as well as looking at how to make India more attractive to overseas investors, the Indian government has also tried to make it easier for Indian companies to invest abroad, for example, by raising the annual investment ceiling and for establishing joint ventures and subsidiaries which could lead to an upward trend in outward foreign direct investment in the coming years.”

When looking at international investments by Indian companies this year, the US has been the main target, with 17 deals totalling $400m. The US was followed by one deal in Germany worth $112.86m and three deals in France worth $68m. Hebbur believes that interest is also closely tied to which countries Mr Modi visits. He says “whether politics is driving business or whether it’s the other way around is almost irrelevant as the end result is leading to opportunities. After each of Mr Modi’s visits, you see an uptick in investor interest, furthered by encouragement from the respective countries that they are open for business.”