India has become a hotspot of merger and acquisition deals amid Covid-19 crisis

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By Badri Narayanan Gopalakrishnan and Miheer Jain

Despite the economic slowdown in the last one year due to the unravelling of the Covid-19 pandemic, mergers and acquisitions in India have not shown any sign of slowing down. In fact, there has been a rise in the number of merger and acquisition deals in the country during the period. This phenomenon can be attributed to the variety of opportunities that the businesses seem to have offered.

These opportunities include the potential for high-value development through merged synergies, the ongoing need for investment in creative and rising business setups, and rescue of financial distress segment or rejuvenation operations. Needless to say, the surge in merger and acquisition deals is also influenced by the constant belief in the potential that Indian businesses project, despite temporary slowdowns and setbacks.

The ongoing flurry of merger and acquisition deals is consented in a few sectors. Most of the transactions are in industries such as telecom, energy and information, among which is the acquisition of 10% stake in Reliance Jio by Facebook at a value of 62.43 billion. Subsequently, there was an investment of $9.5 billion by the other nine global private equity firms in Jio.

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Reliance Jio deals set the tone

There have also been a few major deals of substantial value led by NTPC Ltd which acquiring a major stake in THDC India Ltd along with a 100% stake in Northeastern Electric Power Corporation Ltd. A consortium led by State bank of India player a major role in acquisitions of distressed assets. It acquired a major stake in the distressed Yes Bank. In the Energy sector, the acquisition of Piramal Enterprises’ healthcare insights and analytics business by US-based Clarivate Analytics Plc showed a significant potential.

The flurry of M&A deals in India seems to have been fuelled by the private equity sector. PE firms registered an exponential growth of 27% between 2019 and 2020. In addition, a significant portion of these investments went to start-ups in a variety of industries, including FinTech, HealthTec, and EdTech. A closer look at the deals during the 2020-21 period reveal that the investment sector is filled with cautious optimism. While the volume of deals has fallen, the value in deals has seen a major upsurge.

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Global investors eye India for M&A deals

“India has become one of the busiest markets for M&A in Asia,” said Kerwin Clayton, co-head of M&A for Asia Pacific at JPMorgan Chase & Co. “Global companies and investment funds are pondering more options to enter India, in a similar way to what happened with China a decade or so ago.”

With a positive outlook unlike during the 2008 financial crisis, the global and domestic companies do not plan to abort their operations or expansion plans in the wake of Covid-19 pandemic. For some businesses, commercial uncertainties have been on the rise and the survival of business has become the priority.

Nevertheless, the digital technology or the tech sector has emerged as a winner in these tough times, the past one year has strengthened the foundation of creativity and has created space for novel ideas and innovations and this is likely to continue. The Jio-Facebook deal and the Jio-Google deal got the ball rolling in the sector of digital platforms. So, the concentration of merger and acquisition deals seems to be happening in tech.

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Digital revolution unfolding

With half billion Internet users, India is seeing fierce competition in everything from e-commerce and content streaming to messaging and digital payments just like China did in the early days of the digital revolution. The importance of the sector has only grown this year as India faced uncertainties due to the most severe health emergency the more than a hundred years in March 2020.

One major consideration that needs to be factored in is the relations between India and China. Recent border tension between India and China cast a shadow over deal-making prospects. Before their worst military clashes in 45 years, the Indian government had enraged China by tightening foreign investment regulations on countries with which it shares a border.

According to data collected by Bloomberg, Chinese companies pledged to invest $579 million in Indian companies in the first half of last year, down from $1.5 billion in the same period in 2019. Despite the fact that both countries have agreed to de-escalate tensions along their border, bankers expect Chinese investment to slow further for the rest of the year.

In a statement last year, Srinivas Balasubramaniam (Senior Partner at KPMG) said, “This fiscal year, there could be delays in new investments or existing investments being topped up… Given the current border standoff, Chinese investments are likely to pick up late next year.”

Nevertheless, the global investors including numerous private equity firms seem to be driving M&A deals in India as evidenced by KKR & Co’s announcement of acquiring controlling stake in JB Chemicals and Pharma. The intensity of merger and acquisition deals show that the sector is unlikely to lose momentum in India despite the impact of the pandemic.

(Dr Badri Narayanan Gopalakrishnan is founder and director of Infinite Sum Modelling. Miheer Jain is Research Assistant, Infinite Sum Modelling.)

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