Mumbai, May 24: Cross-border deals are likely to decelerate in the coming months as Indian companies try to overcome the impact of the slowdown on their overseas subsidiaries, analysts said.
The focus will now shift to domestic deals, with firms looking to recast operations and sell distressed assets.
According to a study by Ernst & Young on transactions in the January-March 2009 quarter, Distressed asset sales or restructuring are expected to trigger domestic or inbound transactions as cyclical sectors such as real estate, textiles and auto components may see divestments under financial stress.
Recently, the promoters of real estate companies such as DLF and Unitech have diluted stakes through qualified institutional placements.
The study says cross-border deals — in terms of value — have already slowed down (see table) to 51 per cent in the first quarter of this year from 66 per cent in the corresponding quarter of 2008. However, domestic deals have gained momentum. Analysts believe the government will bring about regulatory changes that can lead to an increase in the volume of mergers and acquisitions (M&A), domestic as well as cross-border.
According to the M&A team of law and tax firm Nishith Desai & Associates, the Companies Bill 2008, introduced late last year, may be notified now.
The bill has several implications. It proposes a single window clearance for mergers through the National Company Law Tribunal and special courts to handle issues related to such deals. This will reduce the transaction time.
The bill proposes to allow Indian companies to merge with foreign companies subject to certain conditions. It strengthens corporate governance by stipulating that one-third of the total directors on a companys board should be independent, said the M&A team of Nishith Desai.