According to the ISI emerging markets database the calendar year 2011 saw M&A deals in India fall by more than 50% over the last year, as only 195 deals were announced.  Compared to this nearly 400 deals were announced in the calendar year 2010. Even the net deal value fell to ~USD 18bn as compared to ~ USD 45bn in the previous year.

The biggest deal of the year was British Petroleum taking over 30% stake in 23 oil and gas blocks of Reliance Industries Limited for an aggregate of USD 7.2bn, followed by Tata Steel selling its 26% stake in Australian miner Riversdale to Rio Tinto for USD 1.1bn. Other big deals included Bain Capital and GIC, the investment arm of the Government of Singapore buying a 30% stake in Hero Investment (P) Ltd, which owns 17% of Hero Honda Motors for USD 0.8bn and Piramal Healthcare purchasing ~5.5% of the issued equity share capital of Vodafone Essar Ltd from ETHL Communications Holdings Ltd for a cash consideration of USD 0.6bn.

Out of the total deals announced this year, 95 were domestic deals amounting to a deal value of ~USD 4bn, 38 were outbound deals where Indian companies acquired a foreign target (deal value ~USD 3.5bn) while 50 inbound deals saw Indian companies being acquired by foreign firms (deal value ~USD 10.5bn). Biggest decline was in inbound deals where they fell by ~65% in comparison to the last year.

Deal breakers

As the actual performances have tended to swerve from the projections estimated by the companies and Investment bankers before the start of the takeover transactions, buyers are getting more and more jitterier and due diligences have become much more rigorous. Because of this M&A deals are now taking much more time to conclude.  The Sensex has declined by nearly 20% this year, as FIIs sold USD 500m worth of Indian equity. The economic growth estimate by the Government has been pulled down to around 7.5% from earlier projections of 9%. Even the Indian rupee has fallen by more than 15% since June 2011 making outbound deals a challenge. The debt crisis in Europe, along with the US financial woes has also cast its gloom on the Indian markets. To add to it the current high interest rates in India are making, funding an acquisition very difficult. All these factors are really compelling the players to adopt a wait and watch policy.

Fingers Crossed for 2012

Looking at the current scenario, I think we’ll really have to keep our fingers crossed for the next year. While some courageous mid-sized Indian organizations might still scout around for small strategic overseas buyouts, the next year could see most Indian companies cutting back on overseas acquisitions (Thermax and Marico have already postponed their M&A plans). And as there will be uncertainty in both the outbound as well as inbound markets, the coming year could see a fair amount of increase in the percentage of domestic deals. But we will continue to see some amount of interest in inbound deals in the next year as the western world continues to be seduced by the ‘India growth story’ and for most of them the option of not being in India does not really exist!

IT applications are a platform to communicate and represent value proposition to the customers. For example, if an ATM is shut down or out of service for a day, the losses incurred are very high. In the banking and financial sectors the application performance directly impacts customers. It is therefore crucial to be able to quantify the business impact. But it’s scary to learn that most of CTO/CIOs in banking and financial  sector do not have the means to measure low application performance and the impact it has on their business.

In a recent study conducted by ValueNotes and Anunta we found that 56% of the IT decision makers in the financial sector do not measure the business impact of the performance of their IT applications mainly due to:

• Lack of tools to measure impact
• Added cost of measurement
• Lack of know-how
• Belief that losses are not significant

In fact we found that IT heads in the banking and financial sector are struggling to outline metrics to calculate revenue losses due to underperforming applications. The IT head of a general insurance company said that “In current day, Indian BFSI sector isn’t evolved enough to measure the business impact.”

During the course of the study we also learned that financial sector is not able to identify the inefficiencies experienced by the internal end user. This loss in employee productivity can be in the range of 10-20% which is huge.

The inability to map application performance and its effect on the business process affects brand reputation. Customer satisfaction plays a major role in the brand of any organization. Slow websites or malfunctioning ATMs lead to unhappy customers and brand erosion.

Therefore, delays in improving the application performance can result in worsening employee productivity, brand image and revenue growth.  The ability of a bank or financial institution to measure the impact of IT performance on the businesses will determine whether they can compete in an increasingly technology intense world.

To download a complimentary copy of the white paper, “State of application performance management in the Indian BFSI sector”, please follow this link.

Monitoring end user experience is vital because the main objective of any application is to enrich the user experience. This is crucially important in banking and financial services companies which are highly dependent on technology and are characterized by
• Large networks with branches reaching tier III and rural areas
• Real time operation and transactions that take place 24*7
• Increasing customer demands
• Constant compliance to regulations by RBI, SEBI and IRDA
• Increasing competition
• Multiple modes of service delivery (technology drivers)

However, in a recent study carried out by ValueNotes and Anunta among CTOs and CIOs of bank and financial companies, we found that less than half could establish the link between IT and end user measurements.

It is clear that IT heads understand the importance of end user monitoring, and most of them are attempting to measure end user metrics. Most of the metrics defined were vague while others had no objective measures but relied on user feedback. A CIO at a public sector bank had an interesting view on the reliability of metrics. He said,” If I look at the no. of problem tickets as one of the metrics, then we cannot gauge the end user experience correctly, as all the tickets may not be relevant.”

Some of the trends observed in our study were:

• Application performance measurements are very broad and the assessment is not detailed
• Most of the metrics signifies a reactive approach towards monitoring and they are not monitored regularly
• The metrics around user experience are gathered for incident reporting and problem solving rather than performance improvement
• Difference in IT and end-user measurement is a clear sign of end user dissatisfaction
• In case of companies who had outsourced their application delivery, very few vendors promised SLAs around application performance from the end user side

I believe that the Indian banking and financial services sector is way past the debate of ‘End user monitoring- a necessity or a beneficial option.’ Application performance management is getting more complex by the day while the expectations of the end user are rising exponentially. End user monitoring has to become an integral part of application performance management. I think that the job doesn’t end at measuring the end user metrics but it should further expand to
• Approaching end user monitoring proactively and on a real time basis
• Linking the end user metrics to business metrics
• Isolating problems and resolving them immediately before the end
users are affected
• Ensuring continued business process

Not monitoring end user performance is not an option. An IT Head of a brokerage firm said,” We are in an industry that needs to be active 24*7, if we don’t monitor end users metrics, it is like we are sitting on a ticking bomb.” Unhappy users’ means unhappy end customers and no financial services company can afford that.

To download a complimentary copy of the white paper, “State of application performance management in the Indian BFSI sector”, please follow this link

According to the ISI emerging markets database the second quarter (April-June) of calendar year 2011 saw M&A deals fall by nearly 20% over the first quarter, as only 32 deals were announced.   Compared to this over a hundred deals were announced in the second quarter of 2010. Even the net deal value fell to USD 3.4bn as compared to USD 9.4bn in the previous quarter.

The biggest deal of the quarter was Private equity firm Apollo Global Management agreeing to make an investment of around USD 300m in Indian conglomerate Welspun Group. Other major deals included Crompton Greaves (CG) acquiring the Swedish drives manufacturer Emotron for USD 84.5m from Polaris Private Equity and Cambridge Solutions selling its BPO division to Xchanging Technology Services India Pvt. Ltd, an indirect wholly owned subsidiary of Xchanging, UK for USD 66m. But the quarter did not see any big ticket deal like the USD 7.2bn Reliance-BP deal which was announced in Feb 2011.

Blame for the decline in deals over the last two quarters can be put on the tattered stock market sentiments, concerns over India’s GDP growth and the burgeoning inflation. Inflation has been one of the biggest problems, as the RBI has increased rates 11 times in the past one and half year in an unsuccessful effort to arrest inflation.

But now the SEBI has come up with new take over norms which are expected to simplify and boost mergers and acquisitions in India. As per the new rules investors are allowed to buy up to 25%, up from the current 15% threshold, without having to make a public offer to buy additional shares. It also raised the mandatory offer to 26% from the existing 20%. In Japan, the trigger for an open offer is 33.3%, in Hong Kong 30%, in Singapore 29.99%, while in the UK it is 30%. However, in these countries the trigger forces the buyer to make an offer for the entire company. Thus India could be a very attractive target for private equities who want to invest in acquiring chunky minority stakes but not buy out the entire public listed company.

Further the SEBI has also abolished the practice of paying a ‘non- compete fee’ to owners of acquired companies making the new rules more minority friendly. Previously payments of up to 25% over the open offer price were allowed to be paid in order to stop founders from competing.

These new norms are expected to improve the deal making environment as it would enhance the seriousness and relevance of firms making open public offers. Thus with the new takeover norms coming into effect soon, it will be interesting to see how the next quarter pans out. My hunch is we could see a rise in in-bound deals as well as deals involving private equity players who are looking for large minority stakes in Indian companies.

Notes: Includes deals announced in the period of April-June 2011; Includes acquisitions, joint-ventures and stake sales.

Source: ISI Emerging Markets Database

As per ISI emerging markets database, only 40 M&A deals were announced in the first quarter of 2011 (Jan-Mar) as compared to 80 in Q1 2010 and 79 in Q1 2009. But net deal value (excluding undisclosed deal values) amounted to USD 9.4bn in Q1 2011 while it was USD 6.3bn in Q1 2010 and USD 5.6bn in Q1 2009. This was mainly because of the USD 7.2bn Reliance-BP deal which was announced in Feb 2011.

Out of these, 17 were domestic deals amounting to a deal value of USD 358m, 8 were outbound deals where Indian companies acquired a foreign target (deal value USD 362m) while 15 inbound deals saw Indian companies being acquired by foreign firms (deal value USD 8.6bn).

The biggest deal of the quarter was UK’s BP buying a 30% stake in Reliance Industries’ 23 oil and gas blocks, including the producing KG-D6 gas field off the east coast for USD 7.2bn. Other big deals include British consumer goods firm Reckitt Benckiser agreeing to buy Paras Pharmaceuticals for about USD 726m, International Paper agreeing to buy 53.5% of Andhra Pradesh Paper Mills (APPM) for approximately USD 257m in cash and Essar Oil acquiring Shell’s Stanlow refinery in the UK for USD 350m.

Sector wise breakup of the M&A deals for the Q1 2011 shows that healthcare sector continues to be the biggest contributor as it accounted for 25% of the total deal value while the Banking, Financial Services and Insurance (BFSI) sector accounted for 19%. Manufacturing sector was the third highest contributor as it contributed 14% in deal value.

As cash-rich Indian companies continue to hunt for strategic bargains globally, despite the slow start, it is expected that 2011 will see a high volume of M&A activity in India. In fact India and China are expected to be the most active buyers in 2011, as attractive valuations drive deals globally. We are already seeing Indian (Aditya Birla group) and Chinese companies (Yanzhou Coal Mining Co) trying to bid for the USD 3.5bn sale of Australian coal miner, Whitehaven Coal Ltd.

Telecom Minister Kapil Sibal has been stressing on the need to have liberal M&A guidelines in telecom, which will facilitate smooth passage for M&A deals in the sector. The Indian Government has further unveiled plans to spend USD 1 trillion to improve infrastructure such as power, roads and rail networks. I think this will considerably pace up India’s demand for metals and minerals in the future. We could see a particular focus on Indian public sector companies targeting global oil assets as well as domestic companies looking to acquire iron ore and coal for their growing steel and power operations. Thus main sectors where I expect major M&A activity in 2011 are oil, gas, coal and other natural resources which will help fuel India’s industrial growth.

Notes: Includes deals announced in the period of Jan-Mar 2011. Includes joint ventures & undisclosed deals

Source: ISI Emerging Markets Database