• Blog

While it is expected to be the year of mergers and acquisitions, private equity is in deep distress, said a panel at a Grant Thornton event to discuss a ‘New Economic Global Order and M&A and PE Strategies’.

Calling 2012 the year of M&A, Professor Jagdish Sheth, Charles H. Kellstadt Chair of Marketing in the Goizueta Business School at Emory University said that the companies that have large amounts of cash on their balance sheet are going to have an advantage when it comes to mergers and acquisitions. The importance of consulting lawyers and accountants, over bankers, will rise, considering the legal situations companies can be faced with due to laws enacted by governments in emerging economies.

Private equity investments made in 2007-08 are coming to the close of their cycles. This will result in increased M&A activity as well. There will also be buyouts and companies going through bad phases fuelled by the economic conditions which will also lead to heightened activity on the M&A front.

Private equity players are finding it tough to find good investment opportunities. Also with the market not showing signs of recovering from the IPO lull for another six months, an exit route for private equity players seems to be running dry.

Entrepreneurs in India, particularly owners of family run businesses have also increasingly opened up to the idea of selling their businesses, fuelling a rise of M&A activity. Prof. Sheth discussed a problem with family run businesses saying that most family run businesses tend to diversify into too many sectors, and are competing with a different set of competitors in each. The businesses need to reduce this diversification and sell off businesses that are not core to the company.

Private equity can make money by restructuring and breaking down a business brutally. There are more and more hostile takeovers expected towards approaching this end. PE players have gained an increasingly negative image because of this change in attitude. PE players need to consider how a business they are investing in can be nurtured and not only look to restructure and make a quick profit, Prof. Sheth said.

A trend in M&A expected, according to Prof. Sheth is that “companies in emerging markets will look to acquire in other emerging markets.” The sectors in terms of M&A which are expected to see hectic activity are pharma, IT, real estate and infrastructure. He added that “India will become a second sourcing destination for manufacturing.”

According to Grant Thornton’s Deal Tracker, a record of all the major deals in 2011, M&As and PE deals put together, 2011 saw a total of 1,026 deals in India, totaling $54 billion, down, however, from 2010’s figure of $62 billion, which was clocked through fewer deals at 971. Another reversal of trend was the fact that in 2011 inbound deals were more than outbound.

Tags:
acquisition, Grant Thornton, merger, private equity