A majority of private equity (PE) players in the country expect a decline in activity in 2009 with only 28% expecting the scenario to improve over the same period, according to a Grant Thornton survey on mergers and acquisitions (M&As) and PE investment scenario in India.

58% agree that the turmoil has affected M&A activity, but 45% believe that current valuations will increase deal activity in the short-term and more than 88% of the respondents believe that M&A is an integral part of their organisation's business strategy for growth.

The survey, conducted in the second quarter of 2009, covered more than 200 respondents from corporate houses, PE players and advisory community across various sectors.

Harish HV, partner, Grant Thornton India, said, Reduced availability of bank financing, uncertainty of growth and mediocre sentiments in the first quarter were the prime concerns influencing the growth and pace of M&A in 2009. However, these effects seem only temporary.

There are discussions on several M&As and there are even talks of billion dollar deals. Such developments demonstrate the attitude of Indian companies towards inorganic growth which they clearly see as a strategic imperative.

The survey revealed a negative outlook for PE investment activity with more than half of the respondents (51%) expecting a decline in PE activity over the next 12 months. A majority of respondents (24%) believed that most PE funds would flow in the form of private investments in public equity (pipe) deals and secondary sales.

In addition, one out of every five respondents said that they consider buy-outs as an appropriate entry route, while only 13% believed that start-ups or entry stage companies would garner sufficient funding, in the current business environment.

There were 312 PE deals in 2008 with a total announced value of $10.59 billion compared to 405 deals with an announced value of $19.03 billion in the year 2007 and 302 deals with an announced value of $7.86 billion in 2006. The value of PE investments for the first 6 months of 2009 has been $2.7 billion.

According to the survey, recent losses have ensured that PE players are now more wary of new investments as evidenced by 79% respondents acknowledging that they would take more active interest in the operations of their portfolio companies and 98% admitting that exit horizons may change for the worse.

IPOs were not seen as the most favourable exit route in the last few quarters.