• HDFC securities
• 07 Jun 2018
• Knowledge Centre

The mergers and acquisitions (M&A) space in the country is witnessing healthy growth. This is reflected in the numbers, which have risen eight-fold to touch US$ 19.1 bn with 40 transactions in April 2018, the largest monthly deal value recorded after March 2017, according to an Assocham report.

 

India Inc closed M&A deals worth US$ 18.53 bn during the Jan-Mar 2018 quarter, while the same quarter last year witnessed 105 M&A deals worth US$ 2.74bn.

 

Recent Merger & Acquisitions

 

Big deals have taken place mainly by way of domestic acquisitions in the Oil &Gas, Power and Telecom sectors. Vodafone and Idea Cellular decided to merge their India operations in a US$ 23 bn deal in 2017. Once completed, this will be the biggest M&A deal in the country so far.

 

As in the last seventeen quarters, this one also witnessed a large-scale investment of US$ 679 mn in start-ups, amounting to 56% of total investment. The real estate sector dominated, with investment amounting to 37%.PEsinvested US$ 4bn in 200 deals, resulting in a 76% increase in value terms.

 

The Assocham Year-Ahead Outlook supports this optimism in the M&A space. It has stated that there has been a quantum leap in M&A transactions in India, with an increased focus on sectors like:

 

• Healthcare,
• Telecom, 
• Energy, 
• Real Estate, 
• Media &Entertainment, 
• Banking, 
• Insurance, 
• Oil, 
• Cement, and 
• Consumer Products.

 

Some suggestions

 

The report recommends the easing of guidelines and legislative support in the Income Tax Act and the Competition Act to increase the number of mergers and acquisitions in India. It has also suggested that “Amendments in the Stamp Act, 1899 will bring uniformity of stamp duty in all Indian states, particularly to M&A transactions, and can prove to be a catapult for the future of M&A's in India.”

 

This optimism is adequately supported by the forging of deals like that between the country’s e-commerce firm Flipkart and the US retail giant Walmart. Walmart has acquired a majority stake of 77% in Flipkart for US$ 16bn. Of the total amount, US$ 2bn is the actual investment in the company, while the rest was used to buy out other stakeholders. Flipkart sells products across 80-plus categories.

 

Sachin Bansal, who had co-founded the firm with Binny Bansal in 2007, will exit the company. Another investor, Japan's SoftBank, will sell its entire stake of 20% in Flipkart and also exit the company. Other investors in Flipkart include Tiger Global, Naspers and Accel. The Bansals own slightly more than 5% each in the company.

 

PE Momentum

 

PE investment has escalated 76% in terms of value this year, with the real estate sector dominating with an investment of 37%. Eight investments brought in funds worth US$ 100mn and above, while 11 attracted inflows between US$ 50-99mn.

 

The Assocham report states that “M&A opportunities in 2018 would remain robust, given the fact that a lot more assets continue to remain under stress. Several big-ticket projects referred to the NCLT (National Company Law Tribunal) under the Insolvency and Bankruptcy Code would see a change in promoters in areas like real estate, steel etc.”

 

So, experts are of the opinion that going forward the outlook for M&A transactions in the country is bullish. However, the fact remains that these deals have to be supported by the simplification of rules and guidelines in critical junctures to support the process, thereby attracting additional interest and investment.