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2018 setting new records for Indian M&A

Anuj Chande Anuj Chande

A growing economy and continued efforts by the government to remove regulatory hurdles and attract foreign investment continue to drive deal momentum in India.

The value of corporate deals in India has doubled in the year to date compared to 2017, driven by big ticket consolidation across various sectors. There have already been 10 billion-dollar deals this year, capturing 74% of total deal value, with deal volume more muted.

M&A is expected to gain further momentum following amendments to the insolvency and bankruptcy codes recently passed by the Indian parliament. This is likely to result in a number of distressed assets coming up for sale at attractive valuations, particularly in capital-intensive sectors such as real estate, infrastructure, power and cement.

Deal activity is also likely to be boosted by India’s ‘Housing for All’ scheme, which should have a multiplier effect across the value chain, as well as the growth in credit as a result of the recapitalisation of public sector undertaking (PSU) banks, along with non-performing asset (NPA) resolutions.

The Securities and Exchange Board of India’s recent announcement of a reduction from five to three in the number of years of financial information that need to be provided will give impetus to IPO activity.

A strong capital market and regulatory reforms, including the new insolvency law, are signs of increasing depth and maturity, making the Indian market more attractive.

Record year for M&A and PE deal activity

2018 to date has been a breakthrough year for the Indian market with its highest ever half yearly deal tally of USD75 billion across 638 transactions, almost double the deal value witnessed in the same period last year.

In addition to 10 deals in the billion-dollar category, there were 52 deals with an estimated value above USD100 million each, which together contributed 93% of total deal value.

Table 1.  Deal summary H1 2018

Deal summary Volume Value (USD million)
Domestic 150 105 129 8,201 3,433 22,676
Cross-border 98 84 95 7,035 4,191 24,510
Merger & internal restructuring 11 9 11 580 23,318 17,459
Total M&A 259 198 235 15,817 30,942 65,451
Private equity 499 412 403 5,920 8,380 9,397
Grand total 758 610 638 21,737 39,322 74,848
Cross border includes
Inbound 44 44 51 3,920 3,369 21,408
Outbound 54 40 44 3,115 822 3,102

Source: Grant Thornton India LLP, Grant Thornton Dealtracker, 2018

M&A driven by both domestic and cross border deals

In all there were 235 M&A transactions clocking USD65.5 billion in H1 2018, over twice the deal value for the same period last year. A favorable local deal environment saw momentum most pronounced on the domestic front, with USD41 billion worth of transactions across 140 deals for the year so far.

This surge in deal activity was driven by domestic companies’ focus on scale and market expansion in light of growing competition, and by efforts to optimise capital structures.

The year to date has also seen the highest cross border deal value since H1 2011 at USD25 million, a 5.8x increase compared to H1 2017.

Inbound deal activity has witnessed a whopping 6.4-fold increase in value compared to H1 2017, primarily driven by the Walmart-Flipkart deal valued at USD16 billion. Even barring this deal, inbound deal value is up 61% on the same period last year.

Top 10 deals accounted for 84% of total M&A deal value in H1 2018

Table 2.  Top M&A deals H1 2018

Top M&A deals H1 2018
Acquirer Target Sector Disclosed values USD million Deal type
Walmart Inc Flipkart Online Services Pvt Ltd E commerce 16,000 Majority stake
Bharti Infratel Ltd Indus Towers Ltd Telecom 14,600 Merger
Oil and Natural Gas Corporation Hindustan Petroleum Corporation Ltd Energy & Natural Resources 5,780 Controlling stake
Tata Steel Limited Bhushan Steel Limited Manufacturing 5,515 Controlling stake
Reliance Jio Infocomm Ltd Reliance Communications Ltd Telecom 3,750 Acquisition
Adani Transmission Ltd Reliance Infrastructure Ltd – Mumbai power business Energy & Natural Resources 2,938 Acquisition
Schneider Electric SA Larsen & Toubro Ltd – electrical and automation business Manufacturing 2,121 Acquisition
ReNew Power Ventures Private Limited Ostro Energy Pvt. Ltd Energy & Natural Resources 1,662 Acquisition
IDFC Bank Ltd Capital First Ltd Banking & Financial Services 1,460 Merger
UltraTech Cement Ltd Century Textiles and Industries Ltd – cement business Manufacturing 1,306 Acquisition

Source: Grant Thornton India LLP, Grant Thornton Dealtracker, 2018

Walmart's late stage buyout of Flipkart underscores the evident maturity of the Indian e-commerce ecosystem and is expected to strengthen investment sentiment in e-commerce and start-ups. Manufacturing, banking & financial services and information technology were other sectors with noticeably increased level of activity in H1 2018.

The telecom sector continued to consolidate in line with the trend seen over the last two years, with five completed deals valued at USD18.9 billion. Energy & natural resources (including cleantech) was another sector which saw a significant jump in deal values, with a couple of transactions in the billion-dollar plus category. 

Surge in cross border activity with Europe

Cross border deal activity surged 3x in H1 2018 in terms of deal values compared to the same period last year, recording USD2.6 billion, a seven-year high, across 22 transactions.

Overseas corporate buyer activity picked up as India continued to be a focus for investment in emerging markets, driven by consolidation, restructuring and asset sales by highly-leveraged Indian companies.

Inbound deals totaled USD2.2 billion, a four-fold increase over H1 2017, across 12 transactions. This surge in deal value was primarily on account of Schneider Electric SA’s acquisition of Larsen & Toubro Ltd’s electrical and automation business for USD2.1 billion. This deal alone accounted for 95% of total inbound deal values and 80% of overall cross border deal value.

German and French companies showed great confidence in the Indian market, executing five deals (worth USD89 million) and three deals (worth USD2.1 billion) respectively. The manufacturing sector attracted the most attention from foreign investors, with four deals worth USD2.2 billion, while the potential of Indian start-ups was also showcased by three deals worth USD15 million.

Indian companies have been making their presence felt through a number of successful greenfield investments and landmark acquisitions. Indian brands have proven their global competitiveness by expanding into new territories during H1 2018, with 10 outbound transactions valued at USD402 million, a strong 24% increase on H1 2017.

In contrast to last year, Indian acquirers showed renewed interest in the automotive, manufacturing and energy sectors, which together contributed 93% of outbound deal value.

Notable cross border deals included:

  • Schneider Electric SA of France acquiring Larsen & Toubro Ltd’s electrical and automation business for USD2.1 billion
  • Motherson Sumi Systems Ltd’s deal with French company Reydel Automotive Group for USD201 million
  • Energy Efficiency Services Ltd (EESL EnergyPro Assets Ltd) acquiring the UK’s Edina Power Services for USD76 million.
  • JSW Steel Ltd’s deal with Italy’s Aferpi SpA for USD67 million.

 Graph 1. Cross border activity between India and Europe 

Cross-boarder activity between India and Europe

Source: Grant Thornton India LLP, Grant Thornton Dealtracker, 2018 

Record-breaking private equity and venture capital activity

The first six months of 2018 have also been record-breaking for private equity (PE) deals, with over USD9 billion in transactions, a 12% increase on H1 2017.

This was largely down to big value deals valued at over USD100 million, mainly due to increasing interest from pension funds, sovereign wealth funds and global buyout funds in India.

We expect this momentum to continue on account of increased competition, the massive amounts of ‘dry powder’ in the form of pent-up capital to be deployed and encouraging government initiatives like incubating tech funds, among others.

The year so far has seen 26 investments valued at USD100 million and above, with 17 investments attracting funds in the USD50-99 million range, together contributing 78% of total PE investment value. Average deal size increased form USD20 million in H1 2017 to USD23 million in H1 2018.

Top 10 investments accounted for 41% of total PE deal value in H1 2018

Table 3.  Top PE deals Q1 2018  

Top PE deals H1 2018
Investor Investee Sector % Stake USD million
Blackstone Group Lp Indiabulls Properties Pvt. Ltd and Indiabulls Real Estate Company Real Estate 50% 742
GIC, Greenko Ventures and Abu Dhabi Investment Authority Greenko Energy Holdings Pvt. Ltd Energy & Natural Resources N.A. 447
GIC Exora Business Parks Limited Real Estate 40% 406
SoftBank Paytm E-commerce Private Limited – Paytm Mall Start-up N.A. 400
Lone Star Funds and RattanIndia Group RattanIndia Finance Pvt. Ltd Banking & Financial Services 50% 400
Brookfield Asset Management Inc Essar Group – Equinox Business Park Real Estate 100% 360
Alibaba Group Holding Ltd, Sands Capital, International Finance Corp. and Abraaj Capital Innovative Retail Concepts Pvt Ltd – BigBasket.com E-commerce N.A. 300
CPPIB and Allianz Capital Partners IndInfravit Trust Infrastructure Management 55% 280
Canada Pension Plan Investment Board ReNew Power Ventures Private Limited Energy & Natural Resources N.A. 247
India Grid Trust (IndiGrid) Sterlite Power Grid Ventures Ltd – RAPP Transmission Co., Kharagpur Transmission Co. and Maheshwaram Transmission Co. Energy & Natural Resources N.A. 220

Source: Grant Thornton India LLP, Grant Thornton Dealtracker, 2018 

After a steady fall in investment since H1 2015, the real estate sector saw the greatest level of activity in terms of deal value, with over USD2 billion of investment, followed by the start-up, energy and banking sectors, which each attracted high values investments.

Investors have shown unprecedented faith in Indian start-ups, with Paytm Mall, Swiggy and Policybazaar all entering the unicorn club of businesses valued at over USD1 billion. As a result, investment in start-ups has doubled compared to H1 2017.