Indian M&A Landscape
Indian business news has been filled with M&A and restructuring activity in the past few months. We saw the country’s largest private bank HDFC Bank and the Largest housing finance company HDFC (Housing Development Finance Corporation) making it the third largest market capitalization as of April 2023 just behind the behemoth reliance industries and Tata Consultancy Services.
Reliance Industries has been on an acquisition spree in 2023, acquiring majority stakes in companies involved in sectors ranging from Retail to Gaming tech. Following are some of the major acquisitions made by Reliance
The epic acquisition of Air India by Tata group, Zomato acquiring Grofers in May 2023, Paytm founder and CEO Vijay Shekhar Sharma will buy a 10.3% stake (worth $628 million) in the fintech firm from China’s Ant Financial (known as Ant Group now) in a no-cash deal. These are just a fraction of the headline acquisitions that we have witnessed this year.
This trend has been carried forward from 2022, as per Deloitte M&A Trends 2023 The M&A market in India crossed USD 160 Bn during 2022.
Key Factors Driving M&A Growth
The rise in M&A activity is attributed to strong domestic demands at a time when global demand was stagnant with uncertainty and interest rate hikes in the U.S. Corporates had healthy cashflows which allowed them to make strategic acquisitions at a time when markets were on low with little activity giving corporates the required headspace to engage in such activities.
Technology, media, and telecom saw the greatest activity with 330 overall delas in 2022. As we saw in the beginning 2023 has witnessed a greater activity in terms of overall value and no. of deals.
However, in an environment where global demand has subsumed due to a variety of factors, the Indian private economy is relatively in a stable and healthy situation. The Indian firms with relatively healthier cashflows have identified the global economic crunch as an opportunity to make strategic acquisitions. This has allowed them to get attractive valuations and work towards increasing their margins with backward integration.
Successful acquirers are increasingly looking towards the creation of “Ecosystem Clusters” which can help them to expand their business base and penetrate deeper into the market. It is obvious that big corporations with healthy balance sheets hold a competitive edge wherein using their financial and operational capability they can integrate much faster and effectively with their strategic acquisition. The government policies have also contributed to the growth in M&A that we are witnessing. As part of the government’s continued emphasis on easing the process of doing business, there have been several regulatory and administrative changes of note. These include a push towards digitization in addition to foreign exchange regulations for inbound and outbound investments continuing to be relaxed. Meanwhile, the judicial system has adopted virtual court technology, thereby increasing accessibility and reducing cost and litigation time.
Future Investment Trends
With all such factors coming together, the opening up of several sectors & investor-friendly reforms brought in, an increase in the quantum of investments is anticipated. Investments in key sectors such as pharmaceutical, technology, telecommunication, and infrastructure (including roadways and ports) are expected to continue to attract both domestic and foreign investors and dominate the M&A market. ESG investments and conducive government policies may also result in increased investment.