The number of mergers and acquisitions (M&A) and private equity (PE) transactions slipped in August this year after hitting an eleven-month high in July, indicating investors are still cautious in striking deals. But the number of both M&A and PE deals in August was higher compared with the monthly average in the first half of 2009.

In total, there were 42 deals announced in India in August this year compared with 56 in July and 62 in August 2008, according to latest data compiled by advisory firm Grant Thornton.

The volume of M&A deals, where one strategic acquirer buys a stake in another company, stood at 25 while the number of transactions where PE funds invested in Indian companies stood at 17. These were higher than the 15-20 average number of M&As in a month during January-June 2009, and 10-15 PE deals in the same period.

Says CG Srividya, partner (specialist advisory services) at Grant Thornton: There has been a stable level of M&A activity in August 2009, primarily driven by significant domestic deals such as Fortis Healthcares acquisition of a group of hospitals from Wockhardt and Essar Steels acquisition of Shree Precoated Steels assets and business.

She added that PE investments continue to be driven by a slew of qualified institutional placement (QIP) where public-listed companies issue new shares to institutional investors.

Large-sized transactions are yet to pick up to any significant extent and as a result, the value of announced transactions (some acquirers do not disclose deal value) continues to remain low.

Total value of M&A and PE deals has crashed to $1.3 billion, 75% lower than August 2008, when deals worth $5.5 billion were struck.

Market watchers say investors are still taking a conservative approach towards investments. Says Rahul Bhasin, managing director of Baring Private Equity Partners (India): Private equity firms were over-exposed till about two years ago.

There has been a slowdown over the past few months and that has only helped investors understand and appreciate the fact that returns are going to be less attractive than before.

Over the past one year, the number of M&A deals had more than halved from an average of 40-60 deals every month during 2007-08.

The slowdown in deal activity, since last September, was linked with global credit crisis which dried up funding for acquisitions. Companies use a mix of loan and equity to finance M&As, and due to credit crunch, banks and financial institutions had turned cautious on funding deals.

The total number of M&A deals signed during the first 8 months of 2009 stood at 183 deals with a value of $6.56 billion as against 344 deals amounting to $21.30 billion during the corresponding period in 2008.

In terms of PE activity, the total number of deals during the period stood at 131 with an announced value of $5.61 billion as against 245 deals amounting to $8.52 billion last year.