The Modi government's Make in India policy has been met with strong enthusiasm and the merger and acquisitions seen in the month are proof of the same, says Prashant Mehra, partner, Grant Thornton.
In an interview to CNBC-TV18, Mehra shares the details of the M&A space and says USD 4.1 billion has come in from cross-border transactions.
IT and pharma continue to rule the roost in the M&A space.
Below is the verbatim transcript of Prashant Mehra's interview with Kritika Saxena on CNBC-TV18.
Q: So the overall deal values to that 8.2 billion, that is around 36 percent growth in terms of volume and 27 percent growth in terms of deal value. How significant is this if you take the year on year (YoY) perspective and of course how much of a contribution was the annual Budget cost of course which was this quarter to actually seeing this pickup?
A: As you rightly said, the year to date has seen 8.2 billion in deal values which is a 26 percent increase in values as compared to the same quarter last year and about 36 percent increase in the volumes as compared to the same period last year. As far as the Budget is concerned, the positive wave is still on. What is very encouraging is the fact that of this USD 8.2 billion, USD 4.1 billion has clearly come from cross border transactions and of the USD 4.1 billion, about USD 3.5 billion has been in relation to the inbound transactions which is a clear indication that the 'Make in India' wave seems to be showing its results.
Q: Can you break up the inbound and outbound deal activity for this quarter?
A: As far as this quarter is concerned, of the 4.1 billion total cross-border transactions USD 3.5 billion has come from inbound transactions and the balance USD 0.6 billion has come from outbound transactions and the outbound transactions will perhaps increase once the listed company results are out and we see the Indian businesses balance sheets coming out of the red, their balance sheets becoming stronger and thus they getting more interested in the outbound transactions.
Q: If you look at the private equity investment, I was taking a look at your report; It is an increase of around 36 percent in terms of values, 67 percent in terms of volume. The sectors are still the typical sectors that we see from IT, healthcare, consumer sectors, e-commerce—what are the other sectors that are now gradually picking up?
A: In terms of the private equity deal activity, what is a little interesting is the fact that the average deals size is come down from USD 15 million dollars to USD 12 million as compared to the same period last year which shows that private equity is taking small bites currently and we are yet to see high volume deals within the USD 50-100 million bracket. As far as the sector spread is concerned, yes pharma and IT, ITES have dominated the P/Es deals as well however we see encouraging trends coming out in real estate and banking and financial services and going forward with the real estate bill perhaps there will be more surge in real estate activity and in the next quarter or two perhaps in the infrastructure sector as well.
Q: Private equity interest in real estate has been quite significant. As you said, now with the recent development with respect to the regulator coming in, do you expect private equity players (PE) players to actively look at expanding within real estate and of course Blackstone takes the cake in that particular area?
A: Yes, absolutely. With the bill coming in place as real estate sector has been slightly notorious in terms of its corporate governance. All these regulations in place give more confidence to organise investors whether it is domestic private equity or international private equity to invest in this sector. Nobody can shy away from the fact that there is demand. There is a lot of potential in this sector and now with the corporate governance factors coming in we will probably see a lot more activity in these sectors.
Q: You also spoke about infrastructure and power. Could you give me a sense about what is the kind of activity in terms of mergers and acquisitions (M&A) be it inbound, be it out bound, of course there is a lot of requirement for investment as far as infrastructure roads, highways is concerned. There are individual road assets being on the block. Lot of debt-laden companies. Do you expect these sectors to see a pick up in the next quarter, because there have an increase in terms of conversation at least.
A: Yes, frankly speaking, the year-to-date has seen nothing significant or fancy to talk about in terms of the infrastructure sector. The recent Budget, the new government has promised and shown its commitment to this sector. But I think we are still to see that being brought into action and real data points coming out. I believe the government will need to all these projects will definitely be with the public-private partnership (PPP) model. But the government will really need to show its commitment in terms of data points in making self investments in this sector which will in the future be partnered with private players. So, perhaps another quarter before we start seeing something real coming in, in terms of announcements of deals.
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