India: The Way Forward – Indian M&A And PE Projections For 2019

Last Updated: 11 February 2019
Article by Shreyas Bhushan and Nishchal Joshipura

2018 was a blockbuster year for deal-making in India, with M&A value exceeding an unprecedented USD 100 billion mark. The year also witnessed a wide range of M&A transactions, including pure play PE/ VC deals, sophisticated platform investments, large consolidations, buy-out transactions etc. Considering the uncertain political and economic climate of 2019 (both domestic and global), we identify some of the key trends/drivers for M&A activity in 2019:

A. Capital Access Constraints – Financial Services

Historically, the financial services sector has been one of the most active in the Indian deal landscape. However, given the recent liquidity crisis spurred by asset-liability mismatches, NBFCs/ HFCs across the board are finding it difficult to find bank leverage for further business expansion. As a result, valuations are predicted to be moderated, thereby attracting equity investments into the financial services space. We also foresee significantly high level of securitization transactions, as loan houses are desperately looking for measures to manage short term liquidity requirements.

B. Divestment of Non-Core Assets and Brand Acquisitions

With stretched balance sheets and the increasing bad-loan crisis, corporates are actively looking for divestment of non-core assets either to pare debt or to fund further growth (or both). To begin with, public sector banks (eg: Punjab National Bank, Canara Bank etc.) have indicated their intent to dispose-off non-core assets running into millions of dollars in order to tackle the NPA problem. In addition, several corporates (eg: DLF, Tata Power etc.) are already exploring options to sell non-core assets in order to refocus on their principal business verticals. We expect considerable financial/ strategic interest in acquisition of these assets. We also anticipate 'brand acquisitions' to be one of the key factors influencing M&A pursuant to divestments, similar to the Unilever-GSK transaction.

C. Distressed Sale Opportunities

The Insolvency and Bankruptcy Code 2016 (IBC) has certainly introduced newer and attractive dimensions to the Indian distressed M&A space. With banks being compelled to initiate the IBC process within 180 days of default, several assets are expected to be on the block for insolvency resolution/ turnaround. Despite the legal/ regulatory challenges of the insolvency process under IBC, foreign and domestic players are extremely optimistic about the turnaround potential of several distressed companies. While strategic investors seem to have the edge currently, private equity funds are also actively exploring various structures to fund distressed M&A (eg: platform deals, ARC and AIF set up etc.). In addition to investments, we expect fund/ consortium formation and securitization transactions to dominate activity in the distressed M&A sphere.

D. Consolidation

Consolidation has been the main contributor for deal volume in 2018, mostly led by transactions in the TMT and financial services space. Walmart's acquisition of Flipkart, Indus' merger with Bharti Infratel, Reliance's acquisition of Hathway and Den, and Capital First's merger with IDFC bank are some of the marquee examples for consolidation transactions. The underlying factors which have resulted in consolidations – viz. access to technology/ distribution channels, bridging resource/ market share gaps, increased operational efficiency, and competition driven activity – will continue to drive M&A in 2019. Key sectors to focus on will be financial services, technology and healthcare services. Further, given the NPA-crisis, the likelihood of consolidation across public sector/ private sector banks is expected to be considerably high in 2019.

E. India's Global Appeal and Sovereign Interest

While private equity investors have consistently viewed India favourably over the last few years, 2018 also marked the entry of large strategic players into India. Walmart, Schneider, Amazon etc. are banking heavily on the India story, which is a great vote of confidence. In addition, several sovereign wealth funds (originating from Singapore, Middle East, Canada) have been part of some of the largest investment transactions of 2018 (eg: GIC's investment into HDFC, CPPIB's investment into Byju's etc.). With sovereign funds like ADIA, CPPIB, Temasek etc. explicitly mentioning allocations worth billions of dollars towards India investments, PE investments anchored by sovereigns can certainly be expected to rise.

F. Control and Platform Deals

Historically, PE players entering India preferred to don the role of financial investors, and acquire minority/ significant minority stakes coupled with standard protection rights. However, over the last 4 – 5 years, buy-out deals have certainly gained more traction, with 2018 witnessing a record value of 'control transactions' (> USD 5 billion). There is a clear indication that seasoned PE players now understand how businesses operate in India, and are willing to 'run the show' by leveraging their portfolio management experience and by assembling management teams which are in sync with the overall ideology of the investors. Buy-out deals (and consequently, formation of buy-out funds) will continue to rise in 2019, as PE players increasingly perceive complete operational and management control as an ideal mode for value realization. We could also expect growth in platform deals, as global sponsors are looking to partner with GPs who have a clear India play (backed by appropriate experience) instead of investing directly.

G. Sector Focus – Financial Services and TMT

While M&A across sectors are expected to remain active, financial services (FS), TMT and real estate will continue to see high levels of activity. Specifically speaking, in the FS domain, NBFCs, HFCs, private banks and insurance companies will likely garner maximum interest. On the TMT front, consumer internet and e-commerce companies will continue to remain relevant and attractive. In addition to primary investments, we anticipate a stark growth in PE secondary exits in these sectors because of rationalized valuations and rigors around capital access. Healthcare services may also see increased investments (and consolidation), given the lack of affordable quality healthcare across the country and the difficulties faced by smaller players to function in the current market.

H. US-China Trade War

The on-going trade war between US and China may not be entirely unfavourable from an Indian perspective. The Indian government is exploring various avenues to boost manufacturing in India, with a view to increase exports to the US and taper down the current account deficit. Certain sectors which involve manufacturing of products such as automotive parts, chemicals etc. are projected to attract large investments. In addition, while China has traditionally attracted maximum capital from the US for acquisitions, in 2019, India can be expected to see a greater share of acquisitions originating from the US.

I. General Elections 2019

The general perception seems to be one of excessive caution in the run up to the general elections, particularly because of the recently concluded state elections. However, we do not expect M&A to drastically slow down during this phase. The growth story of India remains intact, on the back of robust economic conditions (both macro and micro) and the investment themes mentioned above. Whilst some restraint can be observed in the first half of 2019, transactions will continue to be assessed aggressively with execution possibly being pushed to the latter half of the year.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Shreyas Bhushan
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
 
Email Address
Company Name
Password
Confirm Password
Position
Industry
Mondaq Newsalert
Select Topics
Select Regions
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions