Mumbai: Average deal sizes have risen thanks to increased inbound transactions as foreign investors are offering more cash to buy stakes in domestic companies, an analysis of merger and acquisition (M&A) data by Kotak Investment Banking showed.
Of the total M&A deals in India between January and November this year, inbound deals accounted for about 53% of the total deal value of nearly $77 billion.
The top 10 M&A deals in the 11 months ended 30 November were lower at 29% of the total value of M&A transactions, compared to 39% in 2018. But, the average deal size increased from about $72 million in 2017 to nearly $82 million in the past two years.
While inbound minority deals were the highest at 34.8%, inbound majority transactions accounted for 18.2% of the total deals, according to a presentation by the investment banking team of Kotak Mahindra Bank Ltd. Compared to inbound transactions, outbound deals comprised just 12.1% of the overall M&A deals this year.
Higher inbound transactions were primarily led by financial sponsors, which include global investment firms and private equity (PE) firms active in India.
“Sponsors continue to invest in India due to their belief in the broader domestic consumption story. They will look for companies with a strong growth business model, managed by entrepreneurs with good ethics and governance. These sponsors are the same ones that have been in India for the last decade or so, and are being complemented by some of the global sovereign funds (who used to invest via the PE funds) but are now investing directly,” said Sourav Mallik, joint managing director and head-M&A, Kotak Investment Banking.
In terms of sectors, deals within industrials and the auto segment more than doubled to 22% of the total deal value during the period under consideration, compared to 9.1% in the preceding year. Deals within the financial services segment rose to 18%, compared to 8.5% last year, while consumer and retail rose from 3.1% to 5.9%. Deals in the technology space rose from 12.7% to 17.5%.
“Sectors like industrial and auto, financial institutions groups and technology will continue to see substantial M&A activity, while the consumer sector is also likely to continue its uptrend,” the report said.
“We expect increasing interest from financial sponsors in potential control transactions, driven by increasing levels of restructuring and consolidation across sectors. In addition, we expect higher allocations from sovereign and pension funds in search of higher yield-driven opportunities.” said Pankaj Kalra, head, private equity, Kotak Investment Banking.