India Inc is looking at a huge M&A tally of over $60 billion (about ₹4 lakh crore) for 2017, helped by some marquee domestic deals and rich valuations for various private equity investments.

The need to consolidate in the wake of financial stress, as also for cashing out from valuable businesses to meet debt obligations, will continue to give a further boost to the deal-making activities, experts feel.

Experts believe the new year also looks promising in terms of deals as political stability is in place, economic reforms are on a fast track and broader macro factors are also looking positive, though some pressure may come from stretched valuations and high capital market benchmarks.

According to global consultancy giant Grant Thornton, the overall deal activity — including both M&As (mergers and acquisitions) and PE (private equity) — has been about $59 billion in the January-November period of 2017, a 9 per cent rise from the last year.

The final tally for the year may cross $60 billion.

“Valuations expectations, lack of understanding of regulatory process resulted in decline of the deal volumes and values in 2017,” according to deal-tracking firm Mergermarket India.

It, however, noted that M&As may see a slower pace in 2018, with 2019 being the election year and the growth still looking tepid on the economic front.

According to Amit Khandelwal, Managing Partner, Transactions Advisory Services at EY, the domestic deal activity is expected to dominate the overall M&A landscape going forward, on account of the ongoing consolidation wave across sectors and the resolution of insolvency cases.

In addition, digital disruption and sector convergence will likely support the deal momentum as businesses look to acquire capabilities to gain a competitive edge, Khandelwal said.

Key sectors

Experts believe, start-ups, banking and insurance, e-commerce, manufacturing, pharma, healthcare and biotech will be the key sectors in terms of deal action.

“We consider that manufacturing, pharmaceuticals, healthcare and life sciences, financial services, insurance, renewables, telecom and fintech will attract significant interest,” Aakash Choubey, Partner, Khaitan & Co, said, adding several deals will be done out of distressed assets.

EY’s Khandelwal also believes that “with the IBC (Insolvency and Bankruptcy Code) taking effect in 2017, 2018 is expected to see domestic deals emerging from restructuring activities and distressed asset sale.

On the cross-border front, outbound activity is expected to remain “sub-par”, except in sectors such as pharma and technology where Indian players keep looking for additional resources and leading-edge technologies,” he said, while adding that inbound activity can see some traction as global players are trying to expand their presence in India.

M&A in 2017

Choubey further noted that changes in regulatory landscape (demonetisation in November 2016, followed by implementation of the Goods and Services Tax, coming into effect of the General Anti-Avoidance Rules (GAAR) from 1 April 2016, and rigorous implementation of the Insolvency and Bankruptcy Code 2016) had temporarily halted a lot of M&As that would have been undertaken in the due course in 2017.

Vodafone India and Idea Cellular merger to create the country’s largest telecom operator worth of more than $23 billion with a 35 per cent market share, was the top M&A deal of this year.

Other major M&As of the year included IndusInd Bank’s acquisition of country’s leading microfinance player Bharat Financial Inclusion Ltd (BFIL); ONGC’s acquisition of Gujarat State Petroleum Corp’s (GSPC) entire 80 per cent stake in a Krishna Godavari (KG) basin gas block in the eastern offshore for ₹7,738 crore among others.

For private equity investments in India, 2017 has emerged as the best year so far.

The momentum could be largely attributed to increased attention from sovereign wealth funds (SWFs), pension funds and family offices which were at the frontline of the PE activity, said Sanjeev Krishan, Leader (Private Equity and Deals) at PwC India.

Technology sector dominates

Sectorwise, the technology sector (including e-commerce) retained its dominant position with $11 billion invested across 346 deals, accounting for 45 per cent of the investment value this year; the sector witnessed three of the largest deals this year with Softbank and Tencent being at the forefront.

Technology was followed by the financial services sector with $5.2 billion invested across 74 deals. This was partly owed a continued interest in Non-Banking Financial Companies/ Micro Finance Institutions in addition to announcement of Axis Bank’s $1 billion capital mop-up from Bain, which would be the largest PE deal in banking sector.

“The pipeline for reforms in the run up to elections in the various States and the Government’s persistent effort to attract foreign capital in core sectors is expected to keep the deal activity high in the coming months,” Prashant Mehra, Partner, Grant Thornton India LLP said.