Q1 sees decline in business deal activity

The impact of the global recessionary trends is being widely observed more than ever before. The uncertainty following the Russia-Ukraine war has been further cranked up by the recent collapse of the Silicon Valley Bank (SVB), which was shut down in March 2023. The impact thereof is quite visible on deal activities across the sectors. 

There has been a significant decline year on year (y-o-y), both in terms of value and volume of deals. According to a report by Grant Thornton, deal activity declined by 35% (in value) to US$ 9.7 billion and 46% in volume across 332 transactions in the first quarter of 2023. Mergers and Acquisitions (M&As) accounted for more than half of the total deals, yet lower by 21% at US$ 4.4 billion. M&As recorded 76 deals.

This was 56% lower YoY in volume terms and in terms of value, the decline was 21% YoY. The major contribution to the decline was domestic activity, which fell by 62% mainly due to the ‘wait and watch’ approach adopted around the budget announcement. It has been the third-lowest quarterly deal by volumes for any given quarter since 2011.

There were 256 deals worth US$ 5.3 billion recorded in private equity. PE activity registered a decline by 42% in volume and 44% in value YoY, the lowest since Q4 of 2020. The IPO (Initial Public Offer) market dipped to US$ 84.4 million from US$ 1 billion in Q1 of 2022. The Qualified Institutional Placement (QIP) registered two fundraisings. One by the cargo and logistics business of Spice-jet which raised US$ 301 million and the other by Data Patterns which raised US$ 60 million, yet it was less than US$ 541 million raised in Q1 of 2022.  

When it comes to sectoral composition, IT and pharma remained active. Together they recorded 28% of the overall M&A volumes for the quarter. Riding on the acquisition of Jaypee Infratech by Suraksha Realty, the real estate sector accounted for 55% of the quarter’s value, amounting to US$ 2.5 billion. This is the highest-recorded transaction in this sector in the last 12 years.

Deal activity also continued in the startup sector. The sector accounted for 22% of the deals for the quarter, down by 71% over Q1 2022. It registered 17 deals worth US$ 69 million. The sector recorded the larger share in terms of volumes with 60% of the deals. There were six high-value deals in the e-commerce sector that were valued above US$ 100 million.  The e-commerce sector accounted for 30% of the quarter’s deal value, amounting to US$ 1.3 billion. The activity was led by Phone pe which raised US$ 350 million and US$ 100 million each in the two funding rounds.

Prashant Mehra, partner at Grant Thornton Bharat, said that it is encouraging to see that deals are spread across various sectors and that this diversification is a positive development. He further added that as the deals are happening across the sectors, it shows that the market is still interested in transactions, but the weak sentiment means it is a wait-and-watch situation. As far as block deals are concerned he said that it was uncertain whether they will continue because buying is more appropriate when valuations are low rather than selling.

Within a quarter or so, some analysts expect markets to turn around. Despite the listless deal activity in Q1, FY 2023, the signs of pre-deal activity towards March end and early April suggest that the market may improve in the coming months.