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Divestment deals keep M&A market afloat

Rakesh P Sharma in Mumbai

The government's effected divestment deals have contributed heavily to the mergers and acquisitions activity, especially when the open offers made for the privatised companies are considered, the Centre for Monitoring Indian Economy, a Mumbai-based think-tank, said in its monthly report.

The report said the deferral in divestment of Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd have therefore impacted the M&A activity.

Akin to September 2002 where only one mega deal aggregating Rs 1,318 crore (Rs 13.18 billion) accounted for the major portion of the total M&A amount, October 2002 witnessed a similar trend, where 115 M&As worth Rs 1,720 crore (Rs 17.20 billion) were announced.

However, the open offer for Larsen & Toubro amounting to Rs 945 crore (Rs 9.45 billion) accounted for over half the total M&A amount. Excluding the deal, the M&A value drops to Rs 775 crore (Rs 7.75 billion).

While the number of acquisition deals at 65 was the lowest till the month in this fiscal, the number of mergers at 50 were the highest.

The average value per acquisition deal fell to the lowest level of Rs 26.46 crore (Rs 264.6 million). The fall in M&A value is even greater if the mega deal is excluded.

September also saw a mega deal amounting to Rs 1,318.20 crore (Rs 13.182 billion), which inflated the total M&A amount.

Excluding the mega deals, the average value per acquisition deal in September and October plummeted to Rs 11.59 crore (Rs 115.9 million) and Rs 12.11 crore (Rs 121.1 billion), respectively-the lowest in fiscal 2002-03.

About 11 open offers worth Rs 964.1 crore (Rs 9.641 billion) were announced in October 2002. One of these was a final exit option for an offer made earlier. Excluding this, the remaining ten offers aggregate Rs 962.34 crore (Rs 9.623 billion).

According to the CMIE report, there were 761 mergers & acquisitions aggregating Rs 17,530 crore (Rs 175.30 billion) were announced during April-October 2002, compared with 719 mergers & acquisitions worth Rs 16,656 crore (Rs 166.56 billion) during the same period in the 2001-02 fiscal.

While the number of acquisition deals exhibited a three percent drop, mergers struck during April-October 2002 registered a 41 per cent increase to 204.

Interestingly, the consideration paid for the acquisitions was five per cent higher at Rs 17,530 crore (Rs 175.30 billion), compared to Rs 16,656 crore (Rs 166.56 billion) payable during April-October 2001.

Divestments initiated by the government, along with the associated open offers for companies privatised, accounted for over a quarter of the total amount recorded during the April-October 2002 period.

Excluding this, the value of acquisitions recorded during the time period registered a 23 per cent drop over the two time periods to stand at Rs 12,820 crore (Rs 128.20 billion).

Consolidation stood at the forefront in October 2002, with 50 mergers announced during the month. Majority of the companies merging belonged to the financial services sector.

The April-October 2002 period has seen 70 mergers in this sector, which accounts for over one-third of the total number of mergers announced during the period.

After a slow start during the beginning of fiscal 2002-03, the average value per acquisition deal struck in the pharma industry increased to Rs 42 crore (Rs 420 million) in October 2002. Deals struck in this sector averaged Rs 17 crore (Rs 170 million) per deal during the first nine months of fiscal 2002-03.

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