Deal-making by India Inc and investors continued at a brisk pace in the first half of 2016. Data from Grant Thornton show that 750 deals adding up to $21.8 billion were made in this period against 738 deals worth $21.1 billion in the same period in 2015.

Mergers and acquisitions rose 12 per cent year-on-year to $15.7 billion, but global uncertainties appear to have hurt PE (private equity) activity and inbound deals.

Domestic focus

Domestic deal-making was robust, increasing 43 per cent in value year on year to $8.1 billion in the first half of 2016.

Energy and manufacturing saw two deals valued at over a billion dollars — Ultratech-Jaiprakash Cement ($2.4 billion) and Tata Power-Welspun Renewables ($1.4 billion).

IPO action in the first half was the highest since 2010, with 11 issues worth $1.1 billion in diverse sectors. Equitas Holdings was the largest initial public offering, raising $325 million.

“After a long period, post the Andhra Pradesh crisis, microfinance institutions (MFIs) started delivering returns. Given the interest by mainstream NBFCs, many promoters are looking at exiting,” says Aditya, Regional Director, South-Asia, at Incofin Investment Management.

Overseas investments by India Inc too were strong. Outbound deal activity, which was subdued in 2015, touched $3.1 billion, up 135 per cent y-o-y. Deals in the energy, IT and pharma sectors saw investments flowing to the US, the UK and Russia.

Many of the deals (over 80 per cent) were large, valued at over $100 million. This included Indian Oil, Oil India and a unit of Bharat Petroleum acquiring Tass-Yuryakh oilfield in Siberia, Russia, for $1.3 billion, and Wipro's $460 million acquisition of Healthplan Services, US.

Some concerns

Private equity deals, however, witnessed some slowdown. There were 491 private equity deals worth $6.1 billion in the first half of 2016; but investment values dipped 13 per cent y-o-y.

“There was a shift to execution and the frothiness in the market is down,” says Surya Mantha, Investment Director, Peepul Capital.

Investments and deals flowing into India also dipped for the first time in five years. Inbound activity value declined 32 per cent y-o-y to $3.9 billion.

This was due to the absence of big-ticket transactions in sectors such as pharma.

Also, three large deals, for an estimated $1.2 billion, were called off in the first half, mainly due to regulatory concerns. For instance, the $500 million deal between Idea and Videocon did not materialise.

This was reported to be due to worries over the new service tax levy proposal on spectrum trading deals.

Positive outlook

Industry observers are, however, optimistic about overall deal activity in the second half.

“At the back of the positive changes in the regulatory environment, food retail, defence and mining sectors will see more action. Likewise, the renewable energy sector, which was slow for a while, will attract investments,” says Shivpriya Nanda, Joint Managing Partner at J Sagar Associates.

 “The impact of tax-related regulatory changes, with Mauritius, for instance, will start having a visible impact post-2017. So, unless there are dramatic changes in the global arena, 2016 is likely to be a good year for transactions,” adds Nanda.

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