According to the latest Grant Thornton India Watch, merger and acquisition (M&A) and Private Equity (PE) deal volumes involving Indian companies reached an overall record high in 2015 with 1,630 deals completed. A 38% increase on 2014's total of 1,177 deals.
A key driver of deal activity in 2015 was the continued increase of PE activity which hit record levels in 2015, with over 1,000 deals completed and total PE deal value reaching over US$16 billion, a 30% increase on 2014.
PE investment made up more than 60% of the overall deal volume, and 35% (US$16.1 billion) of the overall deal value, for 2015.
Anuj Chande, Head of South Asia group at Grant Thornton UK LLP commented: "The pick-up in PE investment was driven largely by the buoyant sentiment towards start-ups. In 2015 angel investors, angel networks, venture capitalists and some of the more established PE funds were all making bets on the Indian start-up growth story.
"Going forward, the start-up ecosystem in India is likely to witness more rationalisation, funding may get tougher and the focus will increasingly be on fundamentals, with justification around valuations and scalability being key. Investors' ability to mentor and nurture a start-up idea rather than just provide financial investment will be key to finding the right early-stage opportunities."
PE investment in the IT & ITES sector grew 38% year on year and made up 45% of the total at US$7 billion – the highest levels reached to date. The banking, financial services and insurance sector also increased in deal volume by 56% year-on-year.
Continuing the trend from 2014, energy and natural resources, IT & ITES, and pharma, healthcare and biotech were again the top three sectors for M&A activity. Together they accounted for 49% of 2015's total deal value.
The value of cross border deals increased, reaching US$19.5 billion, a 16% increase from 2014. This was achieved in spite of a slight drop in cross border deal volumes which fell from 280 deals in 2014 to 256 deals in 2015.
Table 1: Deal summary for Indian M&A and PE activity for 2011-2015
| Deal summary | Volume | Value (US$ million) | ||||||||
| Year-to-date | 2011 | 2012 | 2013 | 2014 | 2015 | 2011 | 2012 | 2013 | 2014 | 2015 |
| Domestic | 216 | 233 | 219 | 252 | 314 | 5,627 | 6,088 | 5,646 | 16,192 | 8,876 |
| Crossborder | 286 | 263 | 223 | 280 | 256 | 40,845 | 14,537 | 17,995 | 16,871 | 19,514 |
| Mergers and internal restructuring | 140 | 100 | 58 | 37 | 11 | - | 14,789 | 4,541 | 3,989 | 2,030 |
| Total M&A | 642 | 596 | 500 | 569 | 581 | 46,472 | 35,414 | 28182 | 37,052 | 30,420 |
| Private equity | 378 | 402 | 453 | 608 | 1049 | 9,040 | 7,385 | 10025 | 12373 | 16,133 |
| Grand total | 1,020 | 998 | 953 | 1,177 | 1,630 | 55,512 | 42,798 | 38,207 | 49,424 | 46,554 |
| Crossborder includes | ||||||||||
| Inbound | 143 | 141 | 140 | 164 | 131 | 29,055 | 5,985 | 8,741 | 10,895 | 13,538 |
| Outbound | 143 | 122 | 83 | 116 | 125 | 11,789 | 8,552 | 9,254 | 5,976 | 5,986 |
Chande concluded "Overall, 2015 was a year of mixed sentiments. While private equity investments saw significant growth driven by traction in the start-up space and cross-border deal activity grew in value terms, overall M&A deal value declined.
"We expect 2016 to put India on track to achieve sustained foreign and domestic investment growth through the Indian government's initiatives to push policy reforms, favourable commodity prices and curtailed government spending. The proposed rollout of the Goods and Service Tax (GST) is set to cut down the tax compliance burdens for foreign investors and make the market more competitive."
