India Inc: Deals Accelerate

• HDFC
• 30 Aug 2018
• Knowledge Centre

HDFC, Tester

The corporate sector in India is witnessing a boom in deals – both M&A and PE. As at July 2018, Indian companies have been involved in deals worth a record US$97.6 bn. According to J.P. Morgan Chase & Co, many more are to follow going forward, particularly in the technology, media, and telecom space.

 

The biggest deal this year was that of Walmart Inc- Flipkart Online Services Pvt. Ltd. Amounting to US$ 16 bn, this involved the acquisition of a majority stake in the latter.

 

According to a report by Grant Thornton, the relative easing of the regulatory ecosystem and consolidation across sectors have significantly driven M&A and PE deal activity. Other factors triggering strong growth are a relatively stable economy and the liberalization of Government policies. The country has attracted sustained interest from both strategic and financial investors, largely owing to a revival in domestic and cross-border deal activity.

 

An article in the Economic Times quoted Ms. Kalpana Morparia, Chief Executive Officer for South & South East Asia at J.P. Morgan talking about the M&A segment in the country. She says, “This year if there is one stand-out product, it is really M&A. We are seeing some great examples of inbound M&A deals, and a fair amount of domestic consolidation, largely spurred by the bankruptcy process.”

 

Healthy Progress

 

Regarding the favorite sectors for deals going ahead, she says, “Technology, media, and telecom, along with financial services, will probably remain the most active sectors for inbound deal-making this year and the next. Both play on core macro and micro themes around consumption and the digitization of India, and we are still at an early stage of evolution of these themes. The power of data will play a critical role for India in the next 2 to 5 years.”

 

Stating the reasons for these developments, she said, “They play on the core macro and micro themes around consumption and digitization of India, and we are still at early stages of evolution of these themes. The power of data will play a critical role for India in the next two-to-five years.”

 

In the deal space, J.P. Morgan was a front runner, accounting for 42% of deals struck, followed by Goldman Sachs Group Inc and Citigroup Inc.
Investments made by private equity and venture capital funds increased by approximately 50% to US$15.2 bn in the first half of this year, compared to US$10.4 bn in the same period of the previous year, according to an Ernst & Young report. The quantum of high-value deals is also increasing, with 36 transactions above US$100 mn, as against 20 deals in the year-ago period.

 

Other aspects

 

Addressing the threat of the impact of a global trade war, Ms. Morparia says, “We are reacting to the trade war based on some announcements made by the U.S., while the rest of the world has an extreme and great interest in trying to sign unilateral or multilateral deals amongst themselves. For instance, Europe is not saying that they don’t want to deal with Asia. I don’t see this impacting our business. I see business picking up due to intra-Asia trade. With a relative cooling off of tensions in North Korea, if you look at APAC countries – whether it is Japan, Korea, Indonesia, China, India, or Vietnam – there are plenty of opportunities for a two-way flow of trade.”

 

The key factors attracting the interest of overseas players include increased consumption in India’s burgeoning middle class, Government’s focus on improving infrastructure and addressing the issue of bad loans in the banking system. These positives have also helped allay concerns of the country’s depreciating currency and a global trade war.

 

There are already talks of contracts involving GlaxoSmithKline Plc and Kraft Heinz Co, both billion-dollar deals. In this backdrop, India Inc is expected to witness more deals going ahead.