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M&A Deals in Media and Entertainment Sector Fall by over 75%

23-March-2018
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M&A Deals in Media and Entertainment Sector Fall by over 75%

As per EY’s latest Transactions Annual report released today Indian M&A ended the year 2017 with 1,022 deals with a disclosed value of US$ 46.8 billion. While the deal volume reached a record high (as compared to 895 deals in 2016) since 2010, the deal value was lower by 12% from US$ 53.2 billion in the previous year. Primary deal drivers for the year were aimed at market expansion and entry into new markets, digital disruption and sector convergence.

Amit Khandelwal, Partner and National Leader, Transaction Advisory Services, EY, says, “India recorded a healthy M&A activity in calendar year 2017. While there was an increase in the number of deals, they were concentrated in the lower bands . The big ticket deals were fewer in number in 2017 when compared with 2016 as corporate companies held back from venturing into big ticket acquisitions. In addition, the timeline of some of the big-ticket deals got stretched due to increased scrutiny by the regulators and complex deal structures.

The momentum in volume of deals is expected to sustain in the coming year as the Government chalks out a comprehensive reforms plan for 2018 to improve the business and investment climate. Sectors like technology, life sciences and financial services are expected to attract significant investor attention.”

Expectation in 2018

India’s M&A outlook for 2018 looks promising on the back of a stable macroeconomic environment, positive deal fundamentals and buoyant business confidence. In addition to traditional M&A drivers, such as consolidation and market penetration, deal activity will be increasingly triggered by disruptive pressures, such as technological innovation and digitalization, which will continue to redefine growth priorities. It is expected that the domestic market will be at the forefront of deal activity, as bigger players will adopt the inorganic route to expand/consolidate their market positions to better cater the recovering local consumption.

In addition, the divestments by highly leveraged players will also continue, with the implementation of IBC pushing the early resolution of such stressed cases. In terms of cross-border activity, a sense of caution is likely to prevail in this year as well, given the global geopolitical uncertainty and volatile trade dynamics. Nevertheless, Indian players, especially in the pharmaceutical and technology sectors, will continue to scout for potential overseas targets that can further complement their existing offerings and provide a platform for incremental growth.

Review of 2017

Domestic deals continued to dominate the Indian M&A landscape as home-grown companies’ preferred the inorganic route to achieve growth. In terms of volume, the year saw 682 deals constituting around 67% of the total deal volume. The domestic deal value stood at US$ 37.9 billion, accounting for more than three-fourth of the total disclosed value, a first-time phenomenon ever in the Indian M&A deal market. Interestingly, 127 deals (totalling US$ 10 billion) out of the total domestic deals were related to restructuring, constituting around 19% of the domestic deal volume and 27% of the deal value. The local M&A market saw three billion-dollar-plus such deals during the year, totalling US$ 5.3 billion.

Cross-border activity diminished

The year saw 340 cross-border deals with a cumulative disclosed deal value of US$ 8.9 billion. This translates into a 7% decline, in terms of deal volume, compared with 2016, while cumulative deal value slumped by nearly 71% over the same period. A total of 203 inbound deals took place in 2017 with a cumulative disclosed deal value of US$ 6.5 billion. While the deal volume remained flat, the deal value witnessed a decline of 69% y-o-y, from US$ 21 billion, partially due to a higher base in 2016.

On the outbound front, the year recorded 137 deals with a cumulative disclosed deal value of US$ 2.4 billion, registering a fall of 16% y-o-y in deal volume, from 163 deals, and 76% in disclosed value, from US$ 9.6 billion.Country wise, the United States continued to be the most active cross-border partner (71 inbound; 45 outbound), followed by Singapore (18 inbound; 9 outbound) and Japan (23 inbound; 1 outbound).

Sector performance

• Telecommunications- Telecom led with the highest yearly deal value (US$ 14.7 billion) recorded in the last 10 years — a more than five-fold increase as compared to 2016. On the volume front, the activity was flat with 19 deals, the same as the last year. The majority of the transactions were domestic in nature, accounting for 92% of the sector’s deal value and 58% of the deal count.

• Retail and consumer products - The retail and consumer products (RCP) sector witnessed an upsurge in M&A activity clocking a total of 109 deals as against 83 in 2016. The aggregate disclosed deal value at US$ 2.9 billion, was more than four times the levels seen a year ago (US$ 637 million). Online retail registered 24 deals for an aggregate disclosed value of US$ 1.6 billion. F&B was an active segment with accounting for 38 deals for an aggregate disclosed deal value of US$ 644 million.

• Technology- The technology sector recorded 115 deals with a cumulative disclosed deal value of US$ 4.6 billion in 2017. Compared with the previous year, deal volume increased by 5%, while deal value more than doubled. The IT consulting and the software segments continued to be the hotbeds for deal activity, contributing significantly (82 deals; US$ 4.4 billion) toward the sector’s deal volume and value.

• Financial services- The sector was active during the year,registering 127 deals, the highest yearly deal volume recorded in the last eight years. When compared with the previous year,there was a 37% increase in the deal count. On the value front,the sector saw a 14% rise, clocking a cumulative disclosed value of US$ 4.7 billion, as compared to US$ 4.1 billion in 2016. Banking and NBFC (36 deals; US$ 2.7 billion), insurance (10 deals, US$ 903 million) and online finance services (19 deals; US$468 million) were the most active segments during the year.

• Metals and mining- Even though 2017 was marked by an increase in the number of deals at 31 (as against 24 in 2016), the aggregate disclosed deal value at US$ 738 million was down by 64% against last year. This was largely due to the absence of major share repurchase programs, which alone accounted for 91% of the deal value in 2016.

• Infrastructure- the infrastructure sector registered 91 deals with an aggregate disclosed value of US$ 5.4 billion, as compared to 91 deals valued at US$ 4.0 billion in the previous year. Within the infrastructure sector, the power segment continued to have the biggest share of deals, recording 39 transactions with a value of US$ 4.4 billion.

• Media and entertainment- The media and entertainment sector witnessed 63 deals with a cumulative disclosed deal value of US$ 422 million compared with 58 deals valued at US$ 1.8 billion last year. The fall in deal value can be attributed to the absence of mega deals during the year.

• Pharmaceuticals- The sector registered 47 deals (52 in 2016) with a disclosed deal value of US$ 1.5 billion (US$ 4.4 billion last year).The sharp deceleration in deal value can be attributed to the absence of big-ticket transactions (just one deal of more than US$ 500 million). On the segments front, major action happened in the formulations space with 22 deals with a disclosed deal value of US$ 1.1 billion. Biotechnology witnessed 10 deals valued at US$ 264.7 million.

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