India Inc’s M&A value dips 53% in 4 years

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Press Trust of India

The blood bath in the stock market has pulled down the current market valuation of corporate India’s mergers and acquisitions by a whopping $24.04 billion, in just four years time.

During 2005-08, listed Indian companies have been involved in M&A activities worth $45 billion, but the current mark-to-market value of such M&As is down to $20.96 billion, indicating a loss of 53 per cent, SMC Capital said in a report.

“Though M&As are meant more for long-term strategic reasons, a loss of $24.04 billion is lot of money to completely ignore. Nevertheless, the overall M&A experience by Indian corporates turning sour, raising questions about the very rationality of such aggressive M&As,” SMC Capitals CEO Jagannadham Thunuguntla said.

The unprecedented bull market, which encouraged Indian corporates to make brisk, aggressive M&As, was also one of the key reason for fall in its valuations, as during the four-year time (2005-08) the equity market went through a rough patch.

A yearly comparison shows that the listed M&As of 2005 are performing relatively better with current mark-to-market return of negative 6.68 per cent. However, the listed M&As of 2006, 2007 and 2008 are bleeding severely with losses as high as 62.84 per cent, the report said. 

The loss in the M&A space was across the board, except telecom, which posted healthy returns of 21.76 per cent, while the biggest loser was the auto sector, which gave negative returns of 81.23 per cent.

“At a time when many high profile M&A deals such as Tata Steel-Corus, Tata Motors-Jaguar & Land Rover, Suzlon-REPower have seen significant wealth erosion, Telecom emerged as the only stand out industry with healthy returns posted in the transaction of Vodafone’s investment into Bharti,” it added.

Nearly 85 per cent of the listed M&As during 2005-08 are posting losses. There were 54 deals in the period under review, out of which as many as 46 are in losses.

Only eight deals representing 15 per cent have been able to post profits and these deals were from sectors like energy, manufacturing, oil and gas and telecom.

Deals that reported profits were NTPC-Ratnagiri Gas, GAIL-Ratnagiri Gas, Vodafone-Bharti, Tata Power-Arutmin, Holcim-HCC, Bharat Petroleum-Encana, Indian Oil-IBP Company.

All the other sectors under review, barring telecom, that posted negative returns are aviation (69.94 per cent), Banking, Financial Services and Insurance (44.09 per cent), energy (37.07 per cent), hospitality (75.72 per cent), IT and ITeS (57.87 per cent), manufacturing (62.71 per cent), media and entertainment (78.66 per cent), oil and gas (16.81 per cent), pharma and healthcare (67.10 per cent). 

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