India Business Insights

Big-ticket deals hold up Indian M&A and PE values

Anuj Chande Anuj Chande

So far this year, deal activity in India has been promising, with one mega transaction driving deal values to more than US$43 billion across 600 transactions. Deal volumes by contrast have been fairly muted, with companies and investors apparently preoccupied by government policy actions and reforms over deal making.

Private equity investments witnessed a similar trend, with a growth in big-ticket transactions supporting a 27% year-on-year growth in deal values to US$7.6 billion, while volumes slipped to a little above 400 compared to 500 investments in H1 2016 [see Table 1].

Table 1. Deal summary H1 2017

Deal summary - H1 Volume Value (US$million)
  2015 2016 2017 2015 2016 2017
Domestic 152 151 106 5,770 8,206 4,351
Cross-border 120 98 83 7,048 7,035 4,176
Merger & internal restructuring 4 11 9 1,316 580 27,318
Total M&A 276 260 198 14,134 15,822 35,844
Private equity 463 500 413 6,962 5,955 7,590
Grand total 739 760 611 21,096 21,777 43,434
Cross-border includes
Inbound 60 44 45 5,725 3,920 3,374
Outbound 60 54 38 1,323 3,115 801

Source – Grant Thornton Dealtracker

M&A activity in H1 2017

India Inc's M&A deals witnessed a whopping 127% year-on-year increase in deal value in H1 2017, amounting to US$36 billion, in spite of deal volume declining by 24% (see Table 2). This is largely attributable to the Vodafone - Idea merger, with an estimated value of US$27 billion. Excluding this mega merger, deal values fell 44% compared to H1 2016.

Outbound deal values were nearly four times lower than H1 2016, indicating cautious domestic investor sentiments amid an uncertain policy environment in key global economies. Core sectors including telecom, energy, pharma and IT attracted some big-ticket transactions during H1 2017, while volumes were also buoyant among start-up players in the IT and pharma sectors.

Table 2. Top M&A deals: H1 2017

Acquirer Target Sector  Disclosed values US$ million  Nature
Oil and Natural Gas Corporation Ltd Gujarat State Petroleum Corporation Ltd’s - Krishna- Godavari basin Energy & Natural Resources 1,195 Domestic
Tencent, eBay Inc and Microsoft Corp Flipkart Online Services Pvt Ltd E-commerce 1,400 Inbound
PropTiger Realty Pvt Ltd Housing.com - Locon Solutions Private Limited Start-up 250 Merger & internal restructuring
Bharti Airtel Ltd Tikona Digital Networks Pvt. Ltd’s 4G business Telecom 244 Domestic
Havells India Ltd Lloyd Electrical and Engineering Ltd - consumer durables business unit under the Lloyd brand Manufacturing 235 Domestic
Bharti Airtel Ltd Telenor (India) Communications Pvt Ltd Telecom 235 Domestic
Kotak Mahindra Bank Ltd Kotak Mahindra Old Mutual Life Insurance Ltd Banking & Financial Services 201 Domestic
Fairfax India Holdings Corp. and Fairfax Financial Holdings Ltd  Bangalore International Airport Ltd  Infrastructure Management 201 Inbound
JERA Co. Inc ReNew Power Ventures Pvt. Ltd Energy & Natural Resources 200 Inbound
Flipkart Online Services Pvt Ltd Ebay India Private Limited E-commerce 200 Domestic

Source: Grant Thornton Dealtracker

Private equity and venture capital activity in H1 2017

H1 2017 private equity (PE) deals recorded a significant 27% increase in investment values compared to H1 2016, while volumes declined by 17%, indicating increased average ticket size (see Table 3).

However, activity in the start-up segment (which contributed 60% of total investment volumes) remained cautious, with investors rationalising the size of their investment rounds. The sector raised only US$1.2 billion from nearly 250 investments. Sectors such as banking and finance, e-commerce and real estate saw an increase in investment activity in the first half of the year.

Table 3. Top PE deal: H1 2017

Investor Investee Sector Disclosed values US$ million 
Kohlberg Kravis & Roberts and Canada Pension Plan Investment Board Bharti Infratel Ltd Telecom 952
Warburg Pincus, Tamarind Capital Pte and IIFL Special Opportunities Fund ICICI Lombard General Insurance Banking & Financial Services 383
Warburg Pincus Tata Technologies Ltd Infrastructure Management 360
The Xander Group Inc. Shriram Properties Private Limited- Shriram Gateway IT SEZ Real Estate 350
SoftBank, Lightspeed Venture Partners India Pvt Ltd, Sequoia Capital India Advisors Pvt. Ltd and Greenoaks Capital Partners LLC Oravel Stays Pvt Ltd - OYORooms.com Start-up 250
Canada Pension Plan Investment Board The Phoenix Mills Limited - Island Star Mall Developers Pvt. Ltd Real Estate 250
True North Kerala Institute of Medical Sciences (KIMS) Pharma, Healthcare & Biotech 200
True North Managers, Faering Capital and angel investors Religare Health Insurance Co. Ltd  Banking & Financial Services 158
GIC and Abu Dhabi Investment Authority Greenko Energy Holdings Energy & Natural Resources 155
Blackstone Group First International Financial Centre - Mumbai Real Estate 129

Source : Grant Thornton Dealtracker

Cross-border activity with Europe in H1 2017

H1 2017 has witnessed 16 transactions between Europe and India (nine of which were inbound deals), with a total value of US$831 million. This was a 45% year-on-year increase on H1 2016, which saw 22 deals worth US$574 million.

Inbound transactions focused on the IT services sector, with infrastructure, manufacturing, media and entertainment also seeing big-ticket transactions with estimated value of US$100 million or more. France and the UK led the way, with three inbound transactions each, while Switzerland attracted significant attention from Indian companies, with three outbound transactions.

Notable cross border transactions with Europe included Aurobindo Pharma’s acquisition of Portugal’s Generis Farmaceutica for US$142.5 million; Spain’s Abertis Infraestructuras’ US$133 million stake in the acquisition of road assets in India; and Liberty House Group’s acquisition of Tata Steel’s UK specialty steels business for US$123 million [see Graph 1].

Graph 1. Cross border deal activity between India and Europe

Graph 1. Cross border deal activity between India and Europe

Source: Grant Thornton Dealtracker

Deal outlook

The introduction of the landmark Goods and Services Tax (GST), along with other regulatory reforms should make it easier to do business in India, which is likely to drive an increase in consolidation in a number of industry sectors and increase investor interest. With an expected decrease in excess capacity, private investment is likely to grow in the near future.

With the rupee getting stronger, cross border activity is expected to increase, making outbound transactions an attractive opportunity for Indian companies. Inbound deal traction should improve and India’s economic growth is projected to recover in the coming quarters.

The deal environment is also likely to improve due to growth in consumption improving bank balance sheets to support credit growth. All of these factors, supported by a buoyant capital market, will provide investors with good exit opportunities, boosting PE investments in the near future.

For further information, please contact Anuj Chande, Head of the South Asia Group.