Photo: Bloomberg
Photo: Bloomberg

Dealmaking in 2016

Dealmaking in 2016 has largely been about big-ticket announcements. One can look at the following key trends that shaped the industry

Dealmaking in 2016 has largely been about big-ticket announcements. One can look at the following key trends that shaped the industry.

M&A hits record high: Indian merger and acquisition (M&A) activity rose to $69.75 billion across 1,195 announced transactions in 2016, a record level fuelled by a wave of consolidation and rising confidence in the country’s economic growth prospects. In fact, M&A activity in 2016 beat the previous record of $66.96 billion seen in the benign years of 2007 when deal making was at its peak.

Mounting interest in private debt: Improved market sentiment and the passing of the new bankruptcy code encouraged foreign and domestic fund managers to bet big in the space. About 12 private debt funds are on the road to raise as much as $5 billion in investor commitments in 2016 alone, the highest ever in any year, according to data provided by London-based market researcher Preqin.

India-Canada corridor: First came the Japanese, then the Chinese and now an India-Canada corridor is building up. The top Canadian funds have now made investments worth more than $5 billion in India. Large Canadian pension funds—CDPQ (Caisse de dépôt et placement du Québec) and CPPIB (Canada Pension Plan Investment Board) have on the ground presence in India now and have made significant commitments. “Patience Capital" and the ability to stay committed to up to even 10-12 years makes them really institutional and brings long-term locked-in capital to the country. Also, both Brookfield Asset Management and Fairfax Financial Holdings Ltd do not seem to get enough of India opportunity and are literally in conversations for majority of large transactions. 

ALSO READ: M&A activity at a record high of $69.75 billion

Dry powder hit six-year high: Dry powder—the amount of cash with private equity (PE)/venture capital (VC) funds—stands close to a six-year high of $7.1 billion, data from private deal tracker Preqin showed, suggesting an improved fund-raising environment. The high amount of dry powder contrasts with a sharp decline in deal volume in the Indian market. 2016 saw some bit of rationality as funds sitting on a large amount of cash is a sign of increased discipline among fund managers. 2017 should turn out to be an year of deployment.

Stock deals make a comeback: Year 2016 also witnessed a comeback of stock deals. Some of the major stock deals in the year included merger of Ibibo-MakeMyTrip, HDFC Life Insurance Co. Ltd-Max Life Insurance Co. Ltd. HDFC Life and Max in August signed a three-way merger, which would create India’s largest private-sector insurer with total assets of more than Rs1.1 trillion and lead to the eventual listing of HDFC Life on stock exchanges.

Nasdaq-listed MakeMyTrip Ltd agreed to buy Ibibo Group, which is co-owned by South African technology group Naspers Ltd and Chinese investment firm Tencent, in a stock deal.

Besides, online classifieds company Quikr India Pvt. Ltd acquired home rental start-up Grabhouse (Cryptopy Technologies Pvt. Ltd) in an all-stock deal. According to experts, in a cash deal, the roles of the two parties are clear-cut, but in a stock deal, it’s less clear who is the buyer and who is the seller.

Buyouts on an upswing: Indian promoters are no longer wary of selling their businesses or ceding control. Some are drawing inspiration from the likes of Ajay Piramal, Malvinder Singh who sold their businesses and rose further in limelight. “There is a belief that you can still become a star after selling your business. This mindset change is a huge positive," said a buyout investor. Buyouts showed strong momentum in the first six months of 2016, with the total number of deals and deal value at 14 and $2.44 billion, respectively, data from private equity (PE) and venture capital database Venture Intelligence show. Buyout deal value more than doubled from $1.14 billion in the same period last year.

The top buyout deals of the first half of 2016 included Blackstone Group LP’s $1.1 billion acquisition of a majority stake in listed IT firm Mphasis Ltd, Kedaara Capital and Swiss private equity (PE) firm Partners Group’s purchase of mortgage lender AU Financiers for around $140 million and Abraaj Group’s $221 million deal to buy Care Hospitals.

ALSO READ: Is ‘cashless’ the new VC gold rush?

New kids on the block: About two dozen private equity industry executives are on the road to raise up to $2 billion for their new funds. The list includes former Carlyle Group managing director Mahesh Parasuraman and former India Value Fund Advisor partner Sunil Vasudevan’s Amicus Capital; former KKR India director Heramb Hajarnavis’s Sea Link Capital Partners; and Siddharth Parekh’s Paragon Partners. Baring Private Equity Asia managing director Lakshmiah Balachandra Naidu is also looking to float a new fund. Now the question is, will this new set of fund managers bring in a new era of Indian private equity and build out strong institution-like entrepreneurial shops?

Noise around REITs and InVITs got stronger: The Securities and Exchange Board of India (Sebi) proposed easier norms for both REITs and  InvITs in an effort to make it easier for cash-starved developers to raise capital from the public. Several firms such as IRB Infrastructure Developers Ltd, IL&FS Transportation Networks India Ltd, MEP Infrastructure Developers Ltd and Sterlite Technologies Ltd have expressed their intention to consider InvITs as a way to unlock capital.

The IPO rush: 2016 has been a year of initial public offerings as Indian companies have raised $3.7 billion from IPOs so far, excluding the Laurus Labs Ltd IPO, making 2016 the best year for initial share sales in six years, according to data compiled by Thomson Reuters.  Some of the major IPOs included those of ICICI Prudential, Advanced Enzyme Technologies Ltd, Quess Corp. Ltd and RBL Bank Ltd, Laurus Labs.

Shrija Agrawal is Mint’s deals editor. Due Diligence will run every week and cover issues in India’s venture capital, private equity and deals space.

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