Lok Sabha polls: Dealmakers eye elections boost for $30 bn M&As if fractured mandate, policy paralysis fears abate

PTI Posted online: Monday, Apr 14, 2014 at 0000 hrs
New Delhi : The Indian mergers and acquisitions (M&A) market is likely to see increased momentum post Lok Sabha elections and experts believe overall deal values in India could exceed USD 30 billion this year if polls result in a stable government at the Centre - BJP PM candidate Narendra Modi and Congress' Rahul Gandhi in fray as PM Manmohan Singh's long stint set to end under cloud.

Post-elections, the pace is expected to be greater for inbound deals, which have been largely pushed back for many months now for want of better clarity on the policy stance of new government, experts said.

The deal street in India remained moderate during the first two months of the year with only 170 deals worth USD 4.2 billion as cross-border activity remained tepid, as per Grant Thornton data.

There is a strong sense in the market that the situation would improve post general elections provided the new government's economic policies encourage FDI and make doing business in India easier.

Sanjeev Krishnan, Leader - PE & Transaction Services - PwC India said "if there is a stable government (BJP or any other), economic reforms would be back on the Government's agenda".

"Then India would be looked at much more positively by both strategic and PE investors.

"In terms of numbers, at the minimum, I expect overall deal values in India to exceed USD 30 billion this year and Private Equity investments to exceed USD 12.5 billion in 2014 -15. However, if a weak or significant coalition dependence emerges, the numbers could be much lower," he said.

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Echoing similar sentiments, Girish Vanvari, co-Head of Tax, KPMG in India said: "Election outcome can be a game changer. If a stable government emerges at the Centre and the new government takes steps to demonstrate stability of tax and regulatory regime in the country, it would restore the much- needed investor confidence."

Vanvari further said that post elections "we could also see the number doubling from year on. Take an example of the recently announced Sun Pharma-Ranbaxy deal, upwards of USD 4 billion in one deal itself and if there are 4-5 deals like this, imagine where the numbers can be."

The increasing political uncertainty over the past one year along with a fear of a fractured mandate and policy paralysis perception have resulted in creating a cautious approach among strategic players, experts believe.

"The year 2014 is being anticipated to be a big year for M&As, especially for big-ticket deals. However, most of it is expected to take off post the general elections," Sumant Sinha, Chairman and CEO, ReNew Power said.

Consumer, healthcare, metals, real estate and telecom sectors might see the biggest share of deals taking place, he added.

However, Grant Thornton India LLP Partner Harish HV believes deals are independent of economic cycles. Larger deals tend to happen when the financial markets are buoyant and money is easy to raise. In weak market conditions, capacity consolidation tends to happen.

"We expect that the deal market will continue its present momentum and don't expect a dramatic change to the Deal Street based on elections," he said.

"If the economic policies are such that it encourages FDI, we would see inbound deals. If the rupee appreciates and fund raising becomes easier due to buoyant market conditions, we can see more outbound deals."

According to Grant Thornton, in 2013 there were a total of 500 deals worth around USD 28 billion, much lower than the deal volume shown in the previous two years.

In 2012, there were 598 deals worth USD 35 billion, while in 2011, there were 644 transactions worth USD 45 billion.