Despite the recent headwinds facing the Indian economy and the fall in overall merger and acquisition (M&A) activity, the domestic market continues to provide interesting opportunities for inorganic growth, said top executives of corporate India.
M&A activity in India halved in value in 2019 from 2018, reflecting fewer billion-dollar deals, according to consulting firm PwC India.
The year saw 765 deals worth $37 billion, according to PwC’s Deals in India: Annual Review And Outlook for 2020. It said there were only 11 deals valued at over $1 billion, each, in 2019, compared with 25 mega-deals in 2018, including Walmart Inc.’s $16 billion acquisition of Flipkart.
“I look at 2019 as a year of introspection and learning. Although we did not see big-bang deals, we saw a series of good quality deals. We have seen deals across sectors such as logistics, airports, infrastructure, financial services,” said Rohit Berry, partner and head, deal advisory, KPMG in India.
According to Jaspal Bindra, executive chairman, Centrum Group, the liquidity crunch in the Indian economy has hurt the sentiment for M&As, but newer sources of capital were emerging for acquirers and forums, such as the Insolvency and Bankruptcy Code (IBC).
“It is easy to get depressed in an environment where there is poor credit growth for a couple of years and, thus, business sentiment is low on several counts. But if you look at the overall M&A activity, you need two things—supply of capital and a large opportunity,” said Bindra.
If one looks at the source of capital, once banks were shy of lending, people ventured out to find new sources, which may not have been the case in the past, Bindra said, adding that the recent bond issues internationally are the evidence of that. “In terms of opportunities, all fundamentals of India are intact. The IBC is evolving and that opportunity is very large. There is a long list of companies to be resolved there.”
The IBC, which was introduced in 2016, is being seen as a great opportunity for companies with the wherewithal to play the acquisition game. According to Aarti Raghavan, vice-president and head, M&A, Vedanta Ltd, while the IBC is still a young law, and evolving with new judgements from the courts, revival of some of the large cases will help further strengthen it. “The success of IBC is the revival of these companies and I think Electrosteel is a great story. Just nine months after taking it over, we are talking about close to 37% topline growth, 175% Ebidta growth, Ebidta per tonne growing from $50 to over $120. This is without any initial capital investment and only operational efficiencies.”
The insolvency law, though, is not the only change that is making dealmakers optimistic about M&A opportunities. In a positive move, regulators across the board have been tinkering with rules to make it easier to acquire companies.
“I think there are a series of smaller and quieter changes which are in the process of rewriting how public company acquisitions are going to happen. There are changes happening on the takeover code, the delisting rules were changed to allow counter offers by the acquirer about 18 months ago. The results of these changes are not imminently visible, but over time, they will be,” said Harsh Pais, partner, Trilegal.
