Column : Deal Street is abuzz

Written by Saikat Neogi | Updated: Aug 28 2009, 03:01am hrs
Mergers & acquisitions activity seems to be buzzing after an almost year-long lull. M&A volumes have been the highest in the last ten months in July this year and investors seem to be betting big on India.

According to Grant Thornton, total M&As in July 2009 accounted for around $1 billion, a significant increase from $637 million in the same month last year. Even private equity investment saw a quantum jump of around $2 billion in 21 deals during July when compared with just $650 million of investment during the same month last year. Most of the private equity investment was through the qualified institutional placement route and many are still in the pipeline.

Apart from PE deals, global corporations are also looking at Indian companies for acquisitions and strategic stakes. In July alone there were eight such deals with an announced value of $943.39 million, a whopping 655% increase from the same month last year. Among the largest cross-border inbound deal was pharma major Sanofi Pasteur buying nearly 80% in Shantha Biotechnics for $665 million. On the other hand, Indian companies are still taking a cautious approach in acquiring companies abroad as value of outbound cross-border deals have shrunk from almost $500 million in July last year to just $14 million in July this year.

So, what makes India an attractive market for investors now The country is among the five nations in the world that is showing positive equity market returns since June this year. The return on equity (RoE) of the Indian market, calculated using the MSCI indices on a year-on-year basis, shows an almost 8% return in July. In contrast, RoE of the US market is still minus 22% and in China minus 4%.

Similarly, the share of market capitalistion of BSE, according to World Federation of Stock Exchanges, has grown from 0.9% in 2003 to 2.8% in July even at a time when the market cap of developed markets are shrinking. The Sensex is one of the least volatile indices (2.2% in July) in the world as compared with others like 36.6% at Hang Sang index or 26.11% at FTSE 100.