Consolidation, expansion set to drive M&A activity this year: EY

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Mumbai: Mergers and acquisitions (M&A) activity in India is expected to remain positive, driven by domestic consolidation, market share expansion and entry into new markets, according to EY’s 17th Global Capital Confidence Barometer report. Disruptive pressures such as technological innovation and digitization, will also compel players to proactively acquire capabilities that provide a competitive edge, the report added.

The EY Global Capital Confidence Barometer is a biannual survey of more than 1,600 senior executives from large companies around the world, including 93 from India and across industry sectors.

According to the survey, a significant majority of survey respondents (64%) expect the local M&A market to improve further in the next 12 months. Indian companies are also positive on corporate earnings, equity valuations and credit availability, thus pointing to healthy deal market fundamentals.

“The same is reflected in the deal pipeline, which remains strong; 69% of the respondents expect it to improve further through the year. Additionally, Indian executives remain positive on M&A prospects in the country with 55% of them expecting their companies to actively pursue M&A in the next twelve months,” the report said.

The government’s reforms focus along with resilient capital markets and favourable credit environment should stimulate investments and encourage corporations to actively plan their acquisition strategy, he added.

Most Indian companies expect their M&A focus to remain on the domestic market, the report pointed out.

“Indian respondents prefer the domestic market for M&A to tap growth opportunities. It ranks as the top destination of choice for Indian companies, followed by the US and UK,” the report said.

On the sector front, consumer products and retail and financial services are expected to remain active in the M&A market. Technological disruptions emerged as one of the bigger trends that is driving M&A activity. As per survey responses, changing consumer behaviour (31%), digital transformation (28%) and increasing competition from digitally-enabled players (24%) are becoming some of the key disruptive forces across sectors.

“With traditional business models facing an ever-increasing risk of obsolescence, Indian executives are being compelled to review their portfolios on a regular basis to proactively identify and actively pursue emerging growth opportunities,” the report said.

To tackle these issues, companies are also looking to shift talent (within their business) or train the existing workforce to build skill sets suitable for a flexible and dynamic business environment, it added.

Additionally, a significant number of the respondents (26%) believe that private equity can play a major role in Indian M&A, even though the percentage was relatively lower than the global counterparts, the report added.livemint