Recession hits deal street in 2008

In 2008, India’s deal street saw very little traffic. But while the flurry of activity may be markedly less than 2007, it's still far ahead of 2006. So, how has recession hit deal street?



Here is a transcript of Kenan Machado and Anurag Tyagi’s comments on CNBC-TV18. Also watch the accompanying video.



An otherwise buzzing deal street was unable to deal with the US sub-prime credit crisis, when it hit Indian shores this year. The total number of deals in 2008 dropped to 751, with a combined announced value of USD 41.13 billion. That's small change, when compared to the 1,081 deals worth USD 70.14 billion struck last year. However, this number was still higher than the value in 2006, both in terms of volumes and value.



Recession hits deal street:



Year Volume Value ($/bn)

2008 751 41.13

2007 1081 70.14

2006 782 28.16



2008's big deals included Daiichi Sankyo's USD 4.5 billion acquisition of Ranbaxy, and Tata Motors' USD 2.3 billion acquisition of Jaguar-Land Rover. But experts say this dip was not completely unexpected.



Ashok Wadhwa, Group CEO, Ambit Holdings, said, “The global impact of the financial crisis reached India by the time we were in the second half of 2008. And that has positively had an impact on slowdown. There are transactions that were ready to happen and did not happen, there were transactions that were actively being negotiated, where negotiations have been postponed, there were transactions that were waiting for financing for closure and there is no financing, there was no financing in this market.”



Private equity players did not come to the rescue either. With the capital market crash and sharp fall in valuations, industry observers had expected PE investors, who had raised significant amounts of money in early 2008, to begin deploying them. These hopes were dashed too.



306 deals, together worth USD 10.42 billion, were announced this year. Lower than the 405 deals worth USD 19.03 billion seen in 2007, this year's number is just marginally better that the 2006 numbers.



Noted amongst these, was the acquisition of a 20% stake by Providence Equity Partners' in Idea Cellular's telecom tower for USD 640 million and Symphony Capital's acquisition of DLF's property fund for USD 450 million.



Investment bankers also say that the PE firms are going easy, as they want to wait and watch for the best valuations possible.



Ranu Vohra, MD and CEO, Avendus, said “It’s a situation where I would say you should compare it to a person who is going shopping and is opposed to seeing two shops, where there is sales sign on. He sees 20 shops where he sees the sale sign on and all giving significant discounts. So, in that particular case, the natural psyche of the buyer is actually to go across to every shop and check at least what the sale price is and what he can buy out of there and I think a similar situation is what has materialised in the private equity.



Brighter tomorrow:



Experts are confident the next six months will see mergers pick up in the construction, infrastructure, pharma and manufacturing sectors -- driven mostly by distress sales. They also say investment banks will see an increase in fees from advising companies on restructuring or repaying fccbs, at least in the short term.