A lot good was expected to happen in 2012 in terms of mergers and acquisitions. But as the year folded (first nine months), it turned out to be worse than last year. From average deal value to total number of deals, everything witnessed deceleration. Standing on this reality, b&e-icmr conducted a survey among 135 coroprate executives to understand what does corporate India think and expect in 2013. here are the findings of the survey
Pricing of M&A deals in next two years
This was an expectation that the global market had at the beginning of 2012, but so far it has not come true. Instead, both average deal value and number of deals witnessed sharp decline in the first half of the year. Nevertheless, India still looks optimistic as 64% of the respondents believe that average deal size of M&As will go up in the next 24 months, while 13% expect it to remain at the same level. This confidence stems from the reform initiatives started by the government in the recent past to bring the economy back on track. But going by the events in the third quarter, the scenario does not look very bright, at least in the next year or so. On a year-over-year basis, average deal size in Q3 dropped 12.5% to Rs.43.75 million from Rs.50 million recorded in Q3 2011.
Critical role in M&A
The scenario seems to be the same across the world when it is about the key factors that the acquirers are keeping a sharp eye on. Though the focus on distressed M&As is on rise, Indian corporate managers still believe that the focus will be on targets with better EBITDA and attractive cash flow. 48% of respondents of this survey believe that free cash flow is the most important aspect as most companies are going through a liquidity crunch situation and they can not afford to wait for long for the acquired company to generate free cash for them. Considering the gloomy economic conditions and failure on part of many companies to keep their revenue streams alive, EBITDA is the second most important aspect considered by Indian M&A managers.
Pricing of M&A deals in next two years
This was an expectation that the global market had at the beginning of 2012, but so far it has not come true. Instead, both average deal value and number of deals witnessed sharp decline in the first half of the year. Nevertheless, India still looks optimistic as 64% of the respondents believe that average deal size of M&As will go up in the next 24 months, while 13% expect it to remain at the same level. This confidence stems from the reform initiatives started by the government in the recent past to bring the economy back on track. But going by the events in the third quarter, the scenario does not look very bright, at least in the next year or so. On a year-over-year basis, average deal size in Q3 dropped 12.5% to Rs.43.75 million from Rs.50 million recorded in Q3 2011.
Critical role in M&A
The scenario seems to be the same across the world when it is about the key factors that the acquirers are keeping a sharp eye on. Though the focus on distressed M&As is on rise, Indian corporate managers still believe that the focus will be on targets with better EBITDA and attractive cash flow. 48% of respondents of this survey believe that free cash flow is the most important aspect as most companies are going through a liquidity crunch situation and they can not afford to wait for long for the acquired company to generate free cash for them. Considering the gloomy economic conditions and failure on part of many companies to keep their revenue streams alive, EBITDA is the second most important aspect considered by Indian M&A managers.
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