Investment Banking

The landscape for larger, big-ticket M&A transactions in India

November 2018

Read Time: 7 minutes

M&A transactions in India crossed USD 100 billion in 2018, the highest in last decade. The relative easing of the regulatory ecosystem; the ability to raise capital from buoyant capital markets and private investors; the evolution of the IBC which has redefined the insolvency and liquidation landscape in India; and the improved business confidence in India for global strategies have been the primary drivers of mergers and acquisition (M&A) activity in India.  


The largest M&A deals in the last few years were driven by these factors. For example, Russia’s Rosneft PJSC agreeing to acquire Essar Oil Ltd, ONGC’s acquisition of HPCL to create an ‘oil major,’  Tata Power’s acquisition of Welspun’s renewable energy business, UltraTech Cement acquiring the cement assets of Jaiprakash Associates, Flipkart acquiring the Indian arm of Ebay, and then being acquired by Walmart for USD 16 billion, and the associates of State Bank of India (SBI) merging into SBI, thereby enhancing the muscle power of the public sector behemoth. And of course, the recent announcement by the government to merge three public sector banks (PSBs) – Dena Bank, Bank of Baroda and Vijaya Bank – to create the third largest lender of the country, as part of its efforts to clean up the country's banking system. 


The prevalent theme for M&A activity has been consolidation, led by financially strong domestic companies acquiring a few of their competitors at attractive valuations to augment capacity and expand market share. The telecom sector has seen Bharti Airtel’s merger with Tata Teleservices, the USD 23 billion merger of Vodafone and Idea Cellular, Bharti Infratel’s acquisition of Indus Towers Limited and Reliance Jio’s acquisition of Reliance Communications’ assets. Tata Steel’s acquisition of Bhushan steel and Usha Martin and JSW’s acquisition of Monnet Ispat are a couple of examples in the steel industry.  The cement industry saw UltraTech’s acquisition of Century Textiles & Industries and the cement assets of Jaiprakash Associates.  Greenko’s acquisition of Orange Renewable, Renew Power’s acquisition of Ostro Energy exemplify the same trends in the renewable energy industry. 


However, some of the complex ones, involving multiple regulators – HDFC and the Max Life Insurance; Flipkart and Snapdeal; Reliance Communications-Aircel; IDFC bank-Sriram Capital and Zomato-Swiggy were a few cases that did not see consummation.

Yet, if anything, there are clear indications that M&A activity in India will only gain greater momentum in the months ahead.  Probably, the impending general elections or depreciating rupee might delay some of these imperatives by a year or so, but rest assured, India is poised to become an interesting battlefield of corporate entities in 2020 and beyond. 


Emergence of large M&As in India are primarily of three kinds: 


In-bound deals where MNCs are acquiring Indian companies to gain market entry either through purchase of a family run business – Ashirvaad Pipes selling off to Belgium pipes player Aliaxis, Sona Koyo selling to JKEKT – or by providing access to both strategic expertise and financial resources required in a competitive domestic environment – Flipkart selling majority stake to Walmart for USD 16 billion. Additionally, L&T selling off its electrical automation unit to Schneider and Tata Communications selling its majority stake in data centers business to Temasek owned STT Global Data Centers are instances of large Indian groups wanting to sell off their non-core businesses. 


Out-bound deals where Indian companies are acquiring international companies to bring in technology, enter new product segments, gain access to natural resources or expand their customer base.  Motherson Sumi’s acquisition of Finland’s PKC Group, the recent United Phosphorus’s acquisition of Arysta Life Sciences, Hindalco’s acquisition of Aleris, Shree Cement’s 98% stake buy in UAE based Union Cement and HCL Technology’s acquisition of US based Actian Corporation are aimed to expand the market as well as gain access to new products.  However, it is important to note that Indian companies have treaded carefully for large outbound acquisitions post the global financial crisis to avoid funding through high leverage.  In fact, in the last few years, domestic consolidation opportunities have been more attractive on the back of secular growth and availability of finances.


Private Equity-led M&As point to improved business confidence in India, clarity on taxation rules and relatively buoyant capital markets. Global strategic interest providing exit liquidity and surplus low-cost liquidity for back leveraging, has seen financial investors further accentuate their presence in India with larger cheques.  While they continue to make minority investments, notable trends have been witnessed in the recent past in:


(a)  funding platforms in real estate (Blackstone and GIC’s commercial assets platforms with Embassy and DLF respectively, Warburg Pincus and GIC’s warehousing platforms with Embassy and Raheja group respectively) and in financial services (Profectus Capital USD 200 million funding by Actis PE) and in healthcare with TPG’s investment in Asia Healthcare, and 


(b) buy-outs (GIC’s acquisition of majority stake in Greenko, Capital Square Partner’s acquisition of Aegis LTD, Blackstone’s acquisition of mPhasis, AION’s acquisition of GE Capital’s commercial business in India). 


An additional driver of M&A activity in the recent few years has been the increasing interest of global pension funds towards direct equity investments in India. Pension funds have already deployed close to USD 10 billion in India through direct investments. These investors have always had India exposure as General Partners in both global PE funds such as KKR, Blackstone, Carlyle etc as well as home grown Indian PE funds such as Chrsycapital, Everstone, Multiples, True North and Kedaara.  However, these income-focused pension funds have found certain sectors such as commercial real estate, renewables energy and transportation very attractive given their stable operational yields in double digits.


Brookfield’s investments in Unitech’s commercial assets, Gammon’s road assets, CPPIB’s buyout of Indospace warehousing platform and investments in Renew, Phoenix Mills, L&T road platform and CDPQ’s investments in Azure and CLP’s renewables businesses exemplify this trend.  I expect them to continue to deploy billions of dollars in not only yield-focused investments but also diversify into large growth and buyout investments in high growth sectors such as consumer, financial services and healthcare either on their own or as co-investors with their Limited Partners.


Another interesting trend has been the exit of global players from the Indian market either due to antitrust requirements with respect to global mergers or because of change in strategy related to geographies. Indian players, supported by both debt and equity financers, have seen this as a once in life time opportunity to diversify into related business segments.  Notable large transactions are Nirma’s acquisition of Lafarge cement business for INR 9,000 crore and the recent acquisition of Complan and other brands of Kraft Heinz by Zydus Wellness, for approximately INR 5,000 crore. 


To sum up, I am positive that in spite of the recent volatility in the capital markets, INR depreciation and interest rates outlook driving up costs as well as the liquidity crunch, the M&A activities and capital infusion in Indian companies are only set to roll ahead with greater momentum in the months to come. 

Author: Puneet Renjhen, Executive Director, Investment Banking, Avendus Capital

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