Mergers and acquisitions (M&A) have got a leg up, thanks to rising cases filed under the Insolvency and Bankruptcy Code (IBC). Till the last count, M&A deals in distressed asset sales worth around $14.3 billion were done since the code became functional in December 2016, according to data from Kroll and Mergermarket.
Such sales will rise as more and more companies line up to face the new bankruptcy law. Data from Insolvency and Bankruptcy Board of India show that more than $26 billion in distressed steel assets are coming on block, while banks are unwilling to take more haircuts and more companies will be put under the IBC and make their way through the NCLT process. In fact, opportunities for investors and acquirers have grown as quality assets at attractive valuations come to market.
Distress M&As account for 12% of the total M&A value this year, led by deals involving Bhushan Steel ($7.4 billion). In terms of actual deals, distressed M&As has accounted for about 3% of the total M&A volume in the Indian market and 21 out of a total 623 deals completed since 2017. Companies in steel, power, real estate and infrastructure are in the top of the list to be referred to National Company Law Tribunal (NCLT). Similarly, over leveraged companies in manufacturing, textiles, consumer and metals are also likely to face the chopping block. In other words, it is a buyer’s market in the M&A scenario. Some of the notable distress M&A deals were Bhushan Steel, Reliance Communications and Fortis Healthcare.
About two-thirds of the distress M&A deals were direct, where the asset itself was distressed, while the remaining one-third were indirect transactions, which resulted in a sale because the parent organization was in distress. Interestingly, the IBC has also given a legal face to buying distressed assets, as in the past promoters would be very cautious of buying distressed assets.
Till now, the buyers of distressed assets were mostly domestic promoters those with a big strategic play. Data from Kroll show that Indian investors account for 90% of distressed deal value and 81% of deal volume. A few foreign promoters have also shown interest in the assets on the block. Also, financial players such as private equity firms and pension funds are showing interest to put money in distressed assets.
With banks pushing for change in management of loan defaulting companies, corporate assets are available for acquisition at a throw-away price. Swift, time-bound resolution or liquidation of stressed assets will be critical for de-clogging bank balance sheets and for efficient reallocation of capital. Stressed assets are in multiple sectors, so M&As are expected to happen in multiple sectors.
IBC: A work in progress
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