M&A activity scales six-year high in 2016

23 February 2017

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  • Year 2016 records high deal value of US$56.2 billion
  • Registers the largest ever inbound investment of US$12.9 billion
  • Domestic activity drives deal volume, while cross-border leads deal value

A resilient domestic economy and stable capital markets delivered robust M&A activity through 2016, with record high deal value since 2010, says Transactions 2017, EY’s comprehensive analysis of the M&A activity for the year 2016. Cumulative domestic deal value witnessed an unprecedented increase, anchored on the inbound deal value that soared with the largest-ever inward foreign direct investment (FDI). The robust momentum in M&A activity is expected to continue through 2017, owing to continued positive macroeconomic outlook for the country, a sustained focus on reforms by the Government of India (GoI) and optimistic investor sentiment.

The EY report highlights a total of 867 deals with a total disclosed value of US$56.2 billion were announced during 2016. While the deal value soared (87% increase year-on-year) to a new high since 2010, the volume declined marginally (2% y-o-y). This surge in deal value owed itself to twelve billion-dollar-plus deals totaling to US$34.4 billion. The largest transaction of the year was the US$12.9 billion acquisition of Essar Oil Limited (98% stake) and Vadinar port by Russia’s state-controlled petroleum giant Rosneft Oil Company-led consortium. Analyzing sector performances, the oil and gas sector led in terms of the deal value, followed by the financial services sector. From a volume perspective, the technology, infrastructure and financial services sectors dominated, accounting for nearly one-third of the total announced deals in 2016.

Amit Khandelwal, Partner and National Leader, Transaction Advisory Services, EY, says, “M&A activity in India was buoyant in 2016 with the announcement of several big-ticket deals. The momentum is expected to sustain in 2017 as the Indian Government continues its focus on improving business and investment climate in the country. Sectors like technology, life sciences and financial services are expected to attract significant investor attention.”

Domestic activity dominates M&A activity, anchored on consolidation
The year saw 505 domestic deals totaling to US$25.1 billion, the highest yearly value on record, accounting for 58% and 45% of the total deal volume and value, respectively. According to the EY report, significant momentum behind India’s M&A activity was driven by an increased consolidation across sectors as companies divested distressed assets in an effort to reduce debt. On the other hand, corporates with stronger balance sheets were seen deploying funds towards acquisitions and consolidating their market positions.

Restructuring was in prominence
Restructuring also emerged as an important factor in the robust M&A activity. Companies focused on optimizing their portfolios, and maximizing operational efficiency with the aim of unlocking value for the shareholders. A total of 60 restructuring deals with an aggregate disclosed value of US$7.7 billion were recorded during 2016, as compared to 44 such deals worth US$4.3 billion in 2015. Some of the prominent examples include the merger of Grasim Industries Ltd and Aditya Birla Nuvo Ltd, two subsidiaries of Aditya Birla Group and demerger of Talwalkars Better Value Fitness’ gym business into a separate company, Talwalkars Lifestyles.

Cross-border deal value doubles in 2016; Inbound activity strengthens with largest ever investment
A total of 362 cross-border deals with a cumulative disclosed value of US$31.1 billion were clocked in 2016. While the deal value witnessed an increase of 127% y-o-y, the deal volume registered a decline of 10% y-o-y. Inbound activity contributed significantly to this surge in value, in large measure to the US$12.9 billion Essar-Rosneft transaction.

On the outbound front, the year clocked 158 deals with a cumulative disclosed value of US$9.7 billion — registering an increase of 8% in terms of volume and 160% in terms of deal value. The oil and gas sector led in terms of total deal value, with two billion-dollar-plus acquisitions cumulatively contributing US$5.5 billion. The outbound activity for the sector is expected to remain strong as the national oil companies will continue to scout for E&P assets in CIS, Latin America and Africa.

The US sustained its position of being the most active cross-border partner with a total of 93 cross-border deals (50 inbound; 43 outbound), followed by the UK (21 inbound; 23 outbound) and Singapore (16 inbound; 8 outbound).

M&A activity to stay robust in 2017
The momentum behind the M&A activity is expected to stay robust through 2017, with domestic deal activity impacting positively on transaction dynamics. With scale expansion becoming a critical element of Indian corporates’ strategy agenda, consolidation is likely to dominate the M&A agenda across sectors. On the inbound-front, investments are likely to stay healthy given the attractiveness of the Indian economy. In addition, the recently announced proposal to abolish the FIPB in the Union Budget FY17-18 will further liberalize the FDI policy and encourage foreign investors.

Notes to Editors

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