Mergers and acquisitions (M&A) deals in India have neared an all-time high, stated a report by Bain & Company. The report titled ‘M&A: Acquiring to Transform’ stated that such merger and acquisition deals were led by more first-time buyers than ever before. It also pointed out that these deals were mostly mid-sized, ranging from $500 million to $1 billion, as compared to the $5 billion deals that drove activity in 2017-19.
M&A deals accounted for more than 80 per cent of the deals closed in 2020 and 2021, as against 70 per cent through 2017-19.
The Bain report stated that the increase in momentum of such deals has been accelerated due to the disruption caused by the pandemic across sectors and companies. Firms are using mergers and acquisition deals to transform their business to suit a post-COVID world, the report highlighted. It added that with high cash reserves, increased foreign direct investments, low interest rates, companies are responding to disruptions through acquisitions.
Karan Singh, managing partner, Bain & Company India said, “The unprecedented flurry of deals seen in 2021 is the result of a higher pressure to grow and a need to seize more opportunities to disrupt, faced by CEOs today. With shareholders expecting companies to grow their annual earnings by nearly a third over the next three years, companies are being bold and looking at transformational deals where the objective is not just increasing scale but building new engines of growth and new capabilities, beyond the company’s core business.”
The report also stated that the nature of deals in the past 18-24 months have been very different from the earlier years. As much as 46 per cent of all strategic deals above $75 million in 2021 were scope and capability deals. In 2020, such deals amounted to 36 per cent and 31 per cent in 2019.
From start-ups to large conglomerates to MNCs, everyone’s going in for M&A deals. “Armed with capital, insurgents have been out shopping in full force, whether it is to enter new geographies like in the case of Oyo, build omni-channel capabilities and enter new verticals like BYJU’s, or build platforms as is PharmEasy doing in healthcare. Insurgents realise that their stock is valuable currency and almost two-thirds of deals done by them have been stock-plus-cash transactions,” the report elaborated.
Vikram Chandrashekhar, partner at Bain & Company said, “We are seeing more first-time buyers making bold M&A moves. In many cases, these are not vanilla scale deals, but rather acquisitions to enter new verticals, new geographies, or new capabilities. Even with a sound deal thesis the value creation in such cases is not straightforward.”
Not only start-ups, conglomerates have also ramped up M&A. The report states that companies that have reshaped their portfolios using M&A and divestitures have delivered 3X total shareholder return as against those who failed to manage their portfolios.
The report referred to Reliance and stated that it has been aggressively growing its emerging businesses through M&A with recent acquisitions in retail, digital, and renewables sectors. Tata Group is also reshaping its portfolio, the report added, with 20 deals in the last two years, including BigBasket and 1mg for its super app.
Renewable energy is emerging as the next M&A hotspot with domestic and international energy players betting big on renewables in India through M&A. Environmental, social, and governance (ESG) will be another hotspot over the next decade, the report predicted.
Singh added, “2021 has shown that companies are ready to reshape their portfolios, deploying M&A as an important and relevant tool in their transformation. We foresee this trend continuing and another exceptional year for Indian M&A in 2022.”
Also read: Reliance, SBI, Airtel are India's most visible companies: Wizikey Also read: B2B e-commerce platform OfBusiness raises $325 mn at almost $5 bn valuation