m&a - trends

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Mergers &

Acquisitions

Current Scenario and Way Ahead

Gautam Doshi

June 2010

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Current Scenario

Revival in deal activity in the country

More than double the transactions in first five months ascompared to same period last year

Rebound linked to recovery of Indian and global economy

Active sectors Telecom, Pharma, Cement, FMCG

JanMay 10 JanMay 09

No of deals 439 179

Value of deals USD 30 bn USD 8 bn

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Mergers & Acquisitions

Source: Grant Thornton Deal Tracker

Deal Summary

Total 2008 2009 2008 2009

Inbound 86 74 12.55 3.88Outbound 196 82 13.19 1.38

Total Cross Border 282 156 25.74 5.26

Domestic 172 174 5.21 6.70

Total M&A 454 330 30.95 11.96

Volume Value (USD bn)

Deal Summary 2008 2009

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Top 5 M&A Deals - 2009


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M&A Deal Value - Volume 5 Month Trend

31

13

1

8

56 6068

89

44

0

2

4

6

8

10

12

14

Jan-10 Feb-10 Mar-10 Apr-10 May-10

Value(USD

bn)

0

2040

60

80

100

Numberofdeals

Value Volume


Deal Summary Volume Value (USD bn)

Total 2010 2010

Inbound 34 4.88

Outbound 85 17.70

Total Cross Border 119 22.58

Domestic 198 3.46

Total M&A 317 26.04

Deal Summary - Jan-May 2010

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Sector Volume USD mn %

Telecom 6 13,518 52

Pharma & 21 4,854 19Metals, Ores & 6 2,524 10

Banking & Financial

Services 18 2,192 8FMCG, Foods &

Beverages 9 541 2

Top 5 M&A Sectors - 2010

Acquirer Target % Stake USD mn

Bharti Airtel Zain Africa 100% 10,700

Abbott Labs Domestic

Formulations

Business of PiramalHealthcare

100% 3,720

Hinduja Group KBL European

Private Bankers

100% 1,863

GTL Infrastructure Aircel's 17500

telecom towers

100% 1,787

Vedanta Resources Zinc business of

Anglo American Plc

100% 1,340


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Private Equity


Deal Summary

Total 2008 2009 2008 2009

Private Equity 312 260 10.59 12.05

Deal Summary - 2008, 2009

Volume Value (USD bn)

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Private Equity


Top 5 PE Deals - 2009

Top 5 PE Deals - 2008

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Private Equity

PE Deal Value - Volume 5 Month Trend

29

20 18

40

15

1.251.37

0.57 0.260.58

0

10

20

30

40

50

Jan-10 Feb-10 Mar-10 Apr-10 May-10

Value(USD

bn)

0.00

0.200.40

0.60

0.80

1.00

1.20

1.40

1.60

Num

berofdeals

Value Volume


Deal Summary Volume Value (USD bn)

Total 2010 2010

Private Equity 122 4.02

Deal Summary - Jan - May 2010

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Private Equity

Acquirer Investee % Stake USD mn

Quadrangle Capital Tower Vision India NA 300

Unnamed Investors GMR

Infrastructure Ltd

NA 298

Unnamed Investors Yes Bank NA 225

Temasek Holdings GMR Energy Ltd NA 200

GNVF, IDBI, IFCI,

etc

Gujarat State

Petroleum Co

5% 211

Top 5 PE Deals

Sector Volume USD mn %

Real Estate &

Infrastructure

Management 14 519 13

Banking & 20 720 18Power & Energy 4 318 8

Telecom 1 300 7Cement 2 222 6

Top 5 PE Sectors


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Positive Trends

Market in favour of consolidation

Higher degree of homogeneity across markets due to globalization

Marginal costs of set up in new markets

Brand identity recognizable across markets

Market dynamics favour fewer players economies of size and scale

Recent examples Bharti Zain, GTL Tower deal

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Positive Trends

Flexibility and pragmatism demonstrated by Indian Promoters

Promoters recognise strengths and weaknesses and willing to adapt

No stigma attached to alienation of stake in companies

Ability to gauge time to encash vs carry on

Recent examples Ranbaxy, Piramal, Wockhardt, Tata Docomo

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Positive Trends

Availability of credible information

Reliable standards of accounting transition to IFRS

Higher levels of transparency and corporate governance

Breadth and depth in the financial sector

Increase in number of players in the financial intermediary market

Emergence of investor classes with different risk appetites

Angel investors, VC, PE, FIIs, Domestic cos, Foreign cos, Retail investors

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Positive Trends

Certainty in regulatory framework

Clarity in tax provisions relating to slump sale

Incorporation of M&A provisions in direct and indirect taxes

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Roadblocks

Positive trends yet to achieve full potential

Greater flexibility to be shown by Indian promoters

Need for consolidation not fully recognized

Grey areas in regulatory framework

Lack of clarity on stamp duty liability

80IA provisions not conducive to mergers and acquisitions

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Roadblocks

Restrictive foreign exchange controls and listing norms

Direct listing of Indian shares on foreign exchanges not allowed

Indian companies not allowed to merge with foreign companies

Foreigners individually not permitted to invest in Indian shares

Restricts usage of Indian shares as currency for deals

Increasing protectionism

Governments keen on retaining national identity of iconic companies

Increasing use of capital controls to regulate flow of foreign capital

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Roadblocks

Accounting for M&A under IFRS

Appointed date of merger vs actual date of merger

Purchase method of accounting valuation of intangibles and off

balance sheet items and residuary goodwill

Marked departure from Indian GAAP no comparability pre and post IFRS

Capital Reserve vs Credit to P&L A/c MAT impact

Demergers to be treated as non-cash dividend change in

accounting for transferor

IFRS to apply to top 50 companies different norms applicable to

different companies at same time

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Wishlist

Certain shortcomings in IFRS to be addressed

Few norms contribute to volatility and subjectivity in fin statements

Accounting for FCCBs

Lease Equalization vs Inflation

Fair degree of subjectivity in fair valuation norms

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Wishlist

Regulations to encourage cross border M&A

Indian companies to be allowed to merge with foreign companies

Capital controls to be lifted on the Indian rupee

Listing on foreign exchanges to be allowed and vice versa

Permit accounting and reporting in functional currency

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Wishlist

Rationalization of tax provisions

Tax liability only on encashment - not on exchange or conversion

Tax benefits to continue in case of mergers

Clarity on treatment of depreciation post transaction

Introduction of group relief

Introduction of anti-abuse provisions like CFC and thin

capitalization rules

As opposed to current anti-abuse norms prescribed in DTC

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Wishlist

Better protection of minority rights in corporate law

Strengthen norms on independent directors and corp governance

Suitable amendments in listing agreement

Provisions to eliminate conflicts of interest in cases where

management also holds majority shares

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Thank You

m&a - trends

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