Large deals or those worth more than $250 million each have seen a sharp increase in value terms since 2015, Bain & Co. said in its India M&A Report 2019.
Between January 2015 to April 2019, 60 large deals worth $120 billion comprised 39% of the total 3,600 mergers and acquisitions (M&A) with an aggregate value of more than $310 billion, according to the report issued on Thursday.
The value of large deals doubled between 2015 and 2016 to $23 billion and then doubled again over 2017 to 2018 to $56 billion, the global consulting firm said in its report.
Even the average deal size grew from $0.7 billion in 2015 to more than $2.6 billion in 2017 and 2018.
The Bain report cited examples such as Walmart’s $16 billion acquisition of Flipkart in 2018, the $13 billion acquisition of Essar Oil by a Rosneft-led Russian consortium in 2017, and Adani Transmission’s $3 billion acquisition of Reliance Infrastructure’s integrated Mumbai power distribution business in 2018 as some of the largest deals that led to the doubling of large deal values in 2018.
In terms of sectors, industrial goods, energy, and telecom and media comprised more than 60% of large deals by volume and value, with energy and technology sectors contributing the most.
Even as the first half of 2019 saw lacklustre deal activity, 2018 remained a record year for deal-making with about 70% of growth in deals value led by distressed deals, owing to the corporate insolvency resolution process under the Insolvency and Bankruptcy Code (IBC), 2016.
As of 30 June, only 120 of the 2,162 cases under Insolvency and Bankruptcy Code were closed by resolution. Similarly, of the ₹2.53 trillion claims admitted under the IBC process, only 42.8% of claims worth ₹1.08 trillion were recovered.
Still, between January 2015 and April 2019, there were seven large distressed asset acquisitions totalling $23 billion.
The other trend that dominated Indian deal-making was consolidation and diversification, categorized as scope deals that are done to accelerate topline growth through new and attractive market segments or addition of new capabilities.
This segment contributed the highest, at 40%, to large deals volume from 18% in 2015.
Of the total deal value, scope deals made for 56% of large deals between January 2015 and April 2019 with most consolidation happening in the telecom, cement and steel industries.
Some of the largest deals during the period include Airtel’s acquisition of Tata Teleservices in 2019 and Telenor assets in 2018.
Also, UltraTech Cement’s acquisitions of Jaypee Cement in 2017 and Binani Cement in 2018 helped it consolidate its position among cement companies.
This has led to a 4% to 20% increase in market share for the top five players in the consolidating industries.
The third trend in mergers and acquisitions was around the sale of non-core assets and subsequent reinvestment into core businesses in the last four years, which contributed to about one-fourth of the total non-distressed deals.
Examples of such deals include, GlaxoSmithKline’s sale of its India consumer healthcare portfolio to Hindustan Unilever (announced in 2018), and telecom companies’ divestments of tower assets to specialised tower companies.
Last, it was inbound mergers and acquisitions, involving foreign firms trying to make an entry into the India market, which triggered deal-making.
That comprised 20% of total deals in 2018, compared to 9% in 2015 with examples such as Walmart’s big bet on India with Flipkart and IHH’s bid for Fortis Healthcare.
Source: Mint