India business insights

Deal volumes drive Indian private equity and M&A

Anuj Chande Anuj Chande

Despite a slowdown in activity in Q3, corporate deal-making in India is at its highest level since 2007, with transactions worth nearly USD50 billion in the year to date (YTD), driven by consolidation in a number of markets and continued interest from strategic and financial investors.

The positive changes delivered by the roll-out of Goods and Services Tax (GST), stronger Purchasing Managers' Index data, subdued inflation and a steady improvement in unemployment, coupled with easier credit conditions and the abolition of the Foreign Investment Promotion Board, kept deal momentum high in India this year.

There have been 900 transactions worth USD47.8 billion recorded in the year to date - the highest value since 2007 – compared to 1,150 transactions valued at USD35.6 billion in YTD 2016 (see Table 1).

Consolidation fuelled by increasing competition, along with continued interest from strategic and financial investors in the Indian economy are key factors behind these deal values, with acquirers willing to take bigger bets compared to the last couple of years. This year has already seen four deals in the billion-dollar club and 58 deals valued at and over USD100 million each, together contributing around 84% of total deal value.  

However, the initial impact of the roll-out of GST and the lingering effect of demonetisation led to an overall decline in deal activity in Q3 2017, with values down 32% and volumes down 29% compared to Q3 2016.

Table 1.  Deal summary YTD 2015-17

YTD 2015-17 Deal summary Volume Value (USD million)
  2015 2016 2017 2015 2016 2017
Domestic 234 244 171 6,845 11,836 4.116
Cross-border 182 143 128 12,833 11,045 5,190
Merger & internal restructuring 6 12 16 1,326 4,162 23,694
Total M&A 422 399 315 21,005 27,043 33,000
Private equity 769 743 567 12,414 8,517 14,816
Grand total 1,191 1,142 882 33,419 35,560 47,816
Cross-border includes
Inbound 90 67 70 7,958 6,666 4,060
Outbound 92 76 58 4,875 4,379 1,130

Source: Grant Thornton India LLP, Grant Thornton Dealtracker, 2017

M&A activity in the year to date

M&A deal value reached a record high in the year to date at USD33 billion (compared to USD27 billion in YTD 2016), driven by consolidation in the domestic market, as home-grown companies choose the inorganic route to generate growth. A total of 187 domestic deals worth USD27.8 billion accounted for 59% and 84% of total M&A volume and value, respectively (see Table 2).

By contrast, cross-border deal activity declined both in terms of value (down 53%) and volume (down 10%). This marked the lowest cross-border transaction value recorded since 2009.

This trend was particularly noticeable in Q3 2017. M&A values declined 81%, with cross-border activity down 75% compared to levels recorded in Q3 2016. An absence of big ticket transactions in Q3 2017 reduced values to their lowest level in the last 8 years. The third quarter saw only six transactions valued at and above USD100 million, compared to 14 such deals in Q3 2016, of which three were billion-dollar deals.

Table 2. Top M&A deals YTD 2017

Top M&A deals: YTD 2017
Acquirer Target Sector  Disclosed values USD million Deal type
Shrem Group Dilip Buildcon Ltd - 24 road assets Infrastructure Management 250 Domestic
Sembcorp Industries Ltd Sembcorp Green Infra Ltd Energy & Natural Resources 220 Inbound
Tata Sons Ltd Tata Global Beverage Ltd Retail & Consumer 121 Merger & Internal Restructuring
Wilmar International Shree Renuka Sugars Ltd Agriculture & Forestry 120 Inbound
Tata Sons Ltd Tata Chemicals Ltd Agriculture & Forestry 106 Merger & Internal Restructuring
Jindal Poly Films Ltd Apeldoorn Flexible Packaging Holding BV Manufacturing 93 Outbound
Indian Commodity Exchange National Multi-Commodity Exchange of India Limited Banking & Financial Services 86 Merger & Internal Restructuring
Mahindra & Mahindra ltd Erkunt Traktor Sanayii A.S Automotive 76 Outbound
The RPSG Group Apricot Foods Pvt. Ltd Retail & Consumer 69 Domestic
Reliance Industries Limited Balaji Telefilms Limited Media & Entertainment 64 Domestic

Source: Grant Thornton India LLP, Grant Thornton Dealtracker, 2017

While the telecom, e-commerce and energy sectors attracted high value deals in YTD 2017, the manufacturing, pharma, IT and banking sectors, which had dominated in YTD 2016, remained muted.

Cross-border activity with Europe

Despite the fall in overall cross border deals, those with Europe have increased six-fold, at USD1,155 million, compared to the same period in 2016. There have been 30 European cross-border transactions executed in the year to date, compared to 33 deals in the corresponding period in the previous year.

With this increase in deal value (71% year-on-year) and decrease in deal volume (9% year-on-year), average deal size has increased to USD39 million from USD19 million in 2016. The pharma & healthcare (28%) and manufacturing (19%) sectors led cross-border deal activity in value terms, while pharma and IT & ITeS led deal volumes with eight deals each.

Outbound European deal activity recorded transactions worth USD445 million across 14 transactions, a marginal increase of 7% in value, while volume declined 30% over YTD 2016.

Domestic corporations showed continued interest in overseas pharma companies. The sector captured 43% of total outbound deal volume and 69% of deal value, followed by the IT & ITeS sector with 21% of deal volume and 5% of deal value.

The UK and Switzerland attracted significant attention from home companies with five and three deals respectively. Notable high-value deals during the year include:

  • Aurobindo Pharma Ltd’s acquisition of Portugal’s Generis Farmaceutica SA (USD143 million)
  • Jindal Poly Films Ltd’s acquisition of Dutch company Apeldoorn Flexible Packaging Holding BV (USD93 million), and
  • Serum Institute of India Ltd’s acquisition Nanotherapeutics Inc. of the Czech Republic (USD78 million).

To date, 2017 has witnessed 16 inbound transactions totaling USD710 million, a 2.7x increase in deal value compared to the same period in 2016. This has been driven by big-ticket transaction valued above USD100 million each, in the infrastructure, manufacturing and media and entertainment sectors.

France and UK led inbound deal activity with four transactions each. Notable high-value inbound deals include:

  • Abertis Infraestructuras SA’s (Spain) acquisition of GMR Jadcherla Expressways Private Limited (74%) and Trichy Tollway Private Limited (100%) for USD133 million
  • Liberty House Group’s (UK) acquisition of Tata Steel Ltd’s UK specialty steels business for USD123 million, and
  • Dentsu Aegis Network Ltd’s (UK) acquisition of Sokrati Technologies Pvt Ltd, estimated at USD109 million.

Graph 1. Cross-border activity between India and Europe

Graph 1. Cross-border activity between India and Europe

Source: Grant Thornton India LLP, Grant Thornton Dealtracker, 2017

Private equity and venture capital activity

Private equity investments have been at a record high of USD14.8 billion in 2017 to date. This record-breaking deal value has, however, been accompanied by a fall in terms of deal volume by 24% over levels seen in the same period in 2016.

Despite speculation that deal activity might slow down, with fund managers taking a more cautious approach towards fresh funding, the value of private equity investments jumped by a whopping 74% this year compared to the corresponding period in 2016. This is attributed to 32 big-ticket investments each valued at or over USD100 million, compared to only 20 such deals in YTD 2016.

The number of investments in the July-September period has been the lowest in 2017 so far, but deal value in the quarter has been the highest of the year to date, with a three-fold increase from levels witnessed in Q1 2017, indicating that India continues to be a magnet for these big-ticket investments.

Table 3. Top PE deals YTD 2017

Top PE deals: YTD 2017
Investor Investee Sector Disclosed values USD million
SoftBank Vision Fund Flipkart Online Services Pvt Ltd E-Commerce   2,500.00
GIC DLF Cyber City Developers Ltd Real Estate   1,390.00
Multiples PE, CDC, Steadview Capital, ABG Capital, Global IVY Ventures, HDFC Standard Life Insurance Co. Ltd, ICICI Lombard General Insurance Co. Ltd, LTR Focus Fund, Plenty CI Fund I and Plenty Private Equity Fund. RBL Bank Ltd Banking & Financial Services 262.50
SoftBank Group Corp, Hero Enterprise, Sequoia Capital India, Lightspeed Venture Partners and Greenoaks Capital Oravel Stays Pvt Ltd - OYORooms.com Start-up    250.00
KKR & Co. Lp Radiant Life Care Pvt. Ltd Pharma, Healthcare & Biotech 200.00
TPG, Morgan Stanley Asia managed PE Fund, Treeline, QRG Enterprises, Bajaj Allianz Life Insurance, Bajaj Allianz General Insurance and angel investor Janalakshmi Financial Services Pvt Ltd Banking & Financial Services 160.94
West-Bridge Capital Partners and Sequoia Capital Vini Cosmetics Pvt Ltd Retail & Consumer 156.25
Overseas Private Investment Corporation and Wells Fargo Yes Bank Ltd Banking & Financial Services 150.00
PremjiInvest Aditya Birla Capital Limited Banking & Financial Services 109.38
Warburg Pincus CleanMax Enviro Energy Solutions Pvt. Ltd Energy & Natural Resources 100.00
Ali Cloud Investments Just Buy Live Enterprise Pvt. Ltd Start-up 100.00

Source: Grant Thornton India LLP, Grant Thornton Dealtracker, 2017

The e-commerce and real estate sectors witnessed billion-dollar investments during the quarter, while the banking sector attracted five investments valued over USD100 million.

Deal outlook

Investor sentiment for the rest of 2017 is relatively positive, with domestic consolidation expected to continue to push larger deals. Structural reforms such as the roll-out of the Goods and Services Tax, implementation of the Bankruptcy Code and relaxed FDI norms have prepared the stage for deal making in the country and we expect this to continue in the coming months so that this year ends on a high note.