2012 will be year of M&As: Grant Thornton ::Business Line,

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The current calendar year would be one of mergers and acquisitions, according to an annual survey carried out by accounting and advisory firm Grant Thornton India LLP.

The report also highlighted that pharma followed by manufacturing would be the most promising sectors for 2012 both in terms of domestic and cross-border deal activity. Private equity investments would be expected to focus on pharma, healthcare and biotech followed by manufacturing and banking and financial services industry sectors.

84% OPTIMISTIC

The survey was conducted over the last quarter of 2011 and is based on responses from about 100 respondents covering key corporates and private equity funds.

The survey said 84 per cent of the respondents were optimistic about increased M&A activity in 2012 and 60 per cent of corporations were considering private equity as a source of funding in 2012.

Mr Harish HV — Partner, India Leadership Team at Grant Thornton India said, M&A in 2012 is expected to be driven by strategic alliances and acquisitions followed by debt restructuring, mergers or demergers and equity raising.

“While corporates are extremely positive about M&A as a core part of the strategy the top three reasons they adduce for failure of a transaction are leadership change, cultural issues and governance. We are also well aware that for every completed transaction there are several (estimated to be over three times) attempted transactions which do not close.”

GAPS

According to the survey the top reasons given for not closing transactions are gaps in valuation expectations, cultural incompatibility and findings thrown up during due diligence. “Inadequate or wrong disclosure is a strong reason for transactions not concluding,” quoted the report.

The survey points out that 37 per cent of respondents were involved in M&A activity in 2011, as against 38 per cent in the 2010.

“Thus, while inbound deal value was higher than outbound deal value in 2011, we saw higher outbound deal volumes. The survey hints at the possibility that Indian companies may be taking advantage of the relatively lower valuations in the face of global economic uncertainties to acquire companies internationally,” added the report.

An overwhelming majority of respondents (92 per cent) expect PE investments to either stay the same, or increase, in the next year. “A dormant IPO market and rising debt costs have encouraged the role of PE as a funding source.

“Industry captains also believe that this would be aided by factors such as the short-term uncertainty in the capital markets, the increasing acceptance of PE as a source of funding and the expectation that the high valuations seen in certain sectors will stabilise,” points out the survey.

Commenting on the PE outlook for 2012, Mr Siddhartha Nigam — Partner, Mergers & Acquisitions, Grant Thornton India said, “While private equity deal volumes in 2011 witnessed an uptrend with average deal size remaining constant, the PE activity in 2012 is expected to gain further momentum both in terms of volume and value on the back of PE-led industry consolidation and PE exits through trade sale in addition to the ever growing requirement of growth capital of dynamic Indian enterprises.”