BackHow investor confidence, other factors are leading the Indian deals landscape
While PE investments had a tepid start in the first quarter of 2018, funds regained momentum and recorded investments worth $9 billion in the second quarter, a 23% increase over the year-ago period
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India has witnessed a significant surge in activity in the first six months of 2018, recording transactions worth over $69 billion in both private equity (PE) and strategic, or merger and acquisition (M&A), deals. In comparison, transactions worth $66 billion was recorded through last year, indicating that 2018 is already a record-breaking year for India in value terms.
While PE investments had a tepid start in the first quarter of 2018, funds regained momentum and recorded investments worth $9 billion in the second quarter, a 23% increase over the year-ago period. However, the increased activity is largely attributed to a sharp peak in M&As.
The first half of the year witnessed 470 strategic deals worth $53.5 billion, a significant rise over previous years, and is now well placed to surpass the previous landmark year for M&A, that is 2010, which saw transactions worth $61.5 billion.
Here are trends that could impact the deal landscape in India:
While deal volumes remained practically unaltered as compared with previous years, investor confidence is evident with the rise in big-ticket transactions. H1 2018 already witnessed 10 strategic deals in the billion-dollar bracket, compared with 2017 which witnessed just four such deals.
Domestic consolidation led the activity, accounting for 60% of the M&A value in H1 2018. Inbound M&As also witnessed an increase over previous years, accounting for one-third of the transaction value of the six-month period.
With corporate buyers craving growth-driven acquisitions, PE exits have hit an all-time high.
H1 2018 witnessed 129 exits aggregating $20.8 billion, surpassing the previous landmark year in 2017. Strategic exits accounted for 70% of the exit value in H1 2018, a trend likely to continue with PEs looking to harvest returns.
Another noteworthy trend has been the increased focus on control transactions.
With growing attention to the correlation between governance and performance, a large proportion of companies are moving away from family succession in terms of operations and steering towards the PE route. Buyout PE transactions in H1 2018 increased by 20% over the year-ago period, and could be a key theme over the course of the year.
Additionally, a number of Indian conglomerates are looking to hive off non-core and debt-ridden assets, presenting buyout opportunities for funds and corporates:
Text Box: Over 80% of the capital invested by PEs in H1 2018 was concentrated on five key sectors—technology, financial services, real estate, energy and manufacturing. Over the last few years, these sectors have cumulatively attracted majority of investors’ interest, accounting for 75% of the investment value year-on-year. Confidence in these segments has been evident and is likely to continue to grow.
The Insolvency and Bankruptcy Code has presented a significant opportunity to support resolution applicants, where a number of distressed assets in core sectors have come up for bidding. With large players tapping into the opportunity, the ever increasing size of non-performing assets in India and a facilitating deal environment for stressed assets, this could turn out to be the biggest contributor to M&A values in 2018.
Advancement in technology, analytics and digitization are additional triggers to deal activity. A number of companies are now seeking ‘new-age transformative’ services, resulting in increased attention towards this segment from both corporates and PEs. Asian funds, in particular, are expressing keen interest in India’s start-up space. Over the course of the last 18 months, Asian funds have been a part of investments worth over $15 billion. This is a clear sign of the strong investment appeal presented by India’s entrepreneurs.
These recent themes could be an indication of a progressing market landscape and an evolving mindset among both the global and domestic deal-making community. While H1 2018 has set an encouraging tone, deal levels across the rest of the year could be impacted with the run up to the elections. However, transaction activity this year is very likely to cross milestones set in all previous years.
Sanjeev Krishan is partner and leader - private equity and deals, PwC India.
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