Quarterly Compass
Deal Trends
Sector Insights
Mergers and Acquisitions
While M&A activities hit a five year low in 2017 in terms of volume, 2018 has begun on a steady note with 229 deals. This quarter witnessed two deals over USD 1 billion amounting to 65% of the total activity. The energy sector accounted for most of the deal value due to the acquisition of a stake in HPCL by ONGC, followed by the financial and IT sector. IT sector, however, had the biggest share of the volume pie with 67 deals.
While the arrival of Reliance Jio is disrupting margins and market shares in the telecom sector, 2017 saw various deals targeted at achieving financial stability and operational synergies. Although, the spate of acquisitions in telecom seems to have abated in the current quarter, deals aimed at gaining new technologies and venturing into new business models are expected as operators scramble for a share in the revenue pie. Government initiatives like easing of the spectrum cap from 25% to 35% and plans to allow 100% FDI through the automatic route are expected to further encourage this.
Giving effect to the provisions of Section 234 of the Companies Act which now allows merger of an Indian company into a foreign one in addition to the converse, RBI has rolled out regulations that would further encourage cross-border M&A.
The utilities and energy sector is expected to see more consolidation of state-owned units to bring synergies through economies of scale and better negotiating power. The sale of distressed assets, majorly in energy and steel sectors, under the newly institutionalized Insolvency and Bankruptcy Code is also expected to continue.
Overall, the outlook for M&A remains positive with India gaining significantly in World Bank's Ease of Doing business index and amendments to Competition Act paving the way for quicker and easier transactions.
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