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M&A deals worth $13 bn
September, 08th 2010

In a year that mergers and acquisitions (M&A) in India have hit a record, aborted deals are also fast catching up.

Differences over valuation, the inability of merger partners to arrange funds and regulatory issues have scuppered 27 inbound deals worth about $9.5 billion plus five outbound M&A transactions valued at $3.5 billion.

This year, Indian firms have sealed as many as 162 deals abroad worth about $24 billion (`112,000 crore) and about 849 inbound transactions worth about $55 billion (`256,800 crore) where an Indian firm was the target. In total deal value, this is an all-time high, according to Dealogic Ltd, a London-based market research firm that collects and analyses deal-related data.

On Monday, the proposal to create the countrys second largest telecom transmission network by combining the cellphone towers of Reliance Communications Ltd (RCom) and GTL Infrastructure Ltd became the 27th deal to fall through in 2010. GTL Infra had proposed to merge Reliance Infratel Ltd, the cellphone towers arm of RCom, with itself to form an entity with around 80,000 towers and an enterprise value of `50,000 crore. Neither firm explained why the deal collapsed.

In April, a deal by US-based Abbott Laboratories to purchase Wockhardt Ltds nutrition business had fallen through due to a dispute. The tussle pertained to Wockhardts repayment terms for certain liabilities to its overseas banks and foreign currency convertible bondholders.

Abbott said in a statement that the decision was prompted by Wockhardts inability to resolve debt restructuring issues with some of its lenders.

Investment bankers and multinational consultancies that advise firms on M&A deals say valuation mismatches or the inability to tie up required funds are among the primary reasons for deals falling through.

(The deal) market is peaking and there is a spiralling increase in price. Even within six months there are significant differences in valuation expectations, said Girish Vanvari, executive director, M&A tax, at the Indian arm of multinational consultancy KPMG. Companies are looking for ways out.

In 2009, 37 deals fell through, of which 26 were inbound and 11 outbound. Differences in expectations of valuations manifest in two ways, one where there are differences between parties to a proposed deal or where a different bidder steps in and offers higher value, said C.G. Srividya, partner, specialist advisory services, at global consultancy Grant Thornton LLP.

The inability of the acquirer to tie up sufficient funds is also known to throw deals off rails.

Some deals fall through due to lack of financing and this had happened around the downturn (also), said Navin Wadhwani, managing director, NM Rothschild and Sons Pvt. Ltd. But expectations of buyer and the seller change and therefore, they would renegotiating at a later point of time.

Sometimes, firms rush into announcing deals out of varying compulsions and that may lead to some of the deals being called off later at the due diligence stage, experts say.

Sometimes firms are in a hurry to announce because of market compulsions, says Venkat Subramanyam, founder-director Chennai-based investment bank Veda Corporate Advisors Pvt. Ltd. As a result, there is not enough due diligence and since the foundations are not strong, the deal is bound to fall apart.

In some cases, the deal is already out in the public domain, so firms have to announce that such a thing is happening subject to conditions, NM Rothschild & Sons Wadhwani said. We advise our clients not to announce the deal till it has reached a firm stage.

Irrespective of deals that are falling through, the overall deal market is still vibrant and continues to gather pace.

Anybody who is not in India wants to get a foothold, Vanvari said. Both in terms of volume and value of deals, the market continues to gather momentum.

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