Private equity players are exercising guarded optimism and higher diligence on mergers and acquisitions (M&A) in the domestic market, according to PricewaterhouseCoopers (PwC).

Discouraging market, issues related to corporate governance and lesser risk apatite of Indian firms on M&A are the main reasons for the prudent approach, PwC Executive Director and Leader (Deals) N. V. Sivakumar said.“The deals are delayed in India, and the average size of deals has also come down due to market conditions and corporate governance issues since past three years. The initial euphoria about Indian market is no more among PEs now,” Mr. Sivakumar said. The valuations of Indian firms too had come down due to market conditions, he said.

The total M&A deal size in India was about $26 billion in the last fiscal. On an average, there are about 200 inbound, out-bound and domestic deals. The number had not changed, but the average size of deals had gradually scaled down from $70 million in 2010 to $30 million in 2012, Mr. Sivakumar said.

Now, the sentiment was not encouraging due to cautious approach, and it was likely to reflect on the expected growth in the current fiscal.

However, there was one biggest deal by Mylan Inc to acquire Agila Specialties in 2013, which was an exception, he said. “The PEs have lost money in a bunch of deals in India. Now the players are being highly cautious in their deals. Suspicious numbers on company growth, unprofessional trade practices and circular transactions are among the de-motivating factors,” he said.

This apart, the number of Indian firms intending to acquire foreign entities had tapered down due to limited management bandwidth and lower risk apatite among the firms.

“The people at the helm are now scared of taking risk. Besides, global acquisition requires higher management bandwidth, which is missing with several potential firms in India,” Mr. Sivakumar said.

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