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)|
|Merger & internal restructuring||4||11||9||1,316||580||27,318|
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
Source: Grant Thornton Dealtracker
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.