India's deal market clocks $42 billion in first half of 2020

21 September 2020 5 min. read

Merger & acquisitions (M&A) and private equity deals kept up investment momentum in India over the first half of this year, as the market responded to the needs and opportunities thrown up by the Covid-19 crisis. This is according to a new report from Nexdigm. 

The Covid-19 crisis did put up some barriers, such as a squeeze on capital, uncertainty and delays in administrative functions. Both M&A and equity investments suffered from this, although a significant amount of deal activity did persist, particularly in the second quarter this year when things were starting to open up again.

“The uncertainty around business projections, discord on the valuation of companies, and diversion of cash flows to operational needs have hampered deal success. Nevertheless, the government and businesses are undertaking relentless efforts to tackle the crises and ensure long term potential of investments remain intact,” explained Maulik Doshi, a Senior Executive Director in the Transaction Advisory arm of Nexdigm.

Deal trends in India

What results from these efforts is a steady deal landscape, amounting to $42 billion in deal value, consolidating India’s position as Asia Pacific's second largest deal market, as per a Bain & Company report released a few months ago.

Nexdigm’s report suggests that the majority of this deal value – 58% – stemmed from the M&A landscape, driven for a large part by the sudden need for collaboration. This is evident from the fact that most M&A deals fell in the technology and healthcare space – both of which have been the backbone of the economy during the crisis.

Deals: mergers & acquisitions

Sheer numbers put significant pressure on healthcare systems in India and across the world. Private and public players began joining hands to meet the volume, while governments began to clear the way for eHealth services – or telemedicine. All these rapid and large-scale efforts are reflected in the M&A deal volume.

Inbound and Outbound deal activity in India

The tech space had its own role to play. Given that most of the economy was working from home, digital tools became the sole drivers of business activity, which drove up deal activity in this segment. The researchers report that tech deals took the lead when it came to deal value, but healthcare saw significant volume with 100 deals in the first half of this year alone.

Some of the most notable deals were GMR and Groupe ADP ($1.5 billion), Krishnapatnam Port and Adani Ports ($1.4 billion), Yes Bank and SBI ($1.4 billion), and Corporation Bank and Union Bank ($1.0 billion).

According to Doshi, the healthcare and tech sectors will presumably continue to drive deal activity for the foreseeable future. He also expects that distressed deals will pick up, as companies on the brink of insolvency may consider cash consolidation through mergers to safeguard continuity. Conglomerates may also consider demergers and asset transfers for business stability.

Equity investments

The biggest news in the private equity space was the Jio Platform deal with Facebook, which at $5.7 billion took up 60% of all deal value in India. Outside of this, the investor landscape saw a flurry of small deals, with an average deal size of just over $12 million. That is less than half of the average deal size from the first half of last year.

Equity investments

That being said, the smaller deals did add up to a significant amount, comprising 40% of all deal value in India for the first half of this year. Once again, technology was the dominant sector for investments, with segments such as ecommerce, software as a service (SaaS), fintech and consumer tech all playing a large role.

Predictably, healthcare also drew significant investments. Nexdigm reports that the lockdown also threw a lot of alternative funding models into focus. Structured deals, internet-focused transactions and crow funding are some examples of asset classifications that have been thriving so far this year.

On the whole, however, private equity deal activity was down 8% since last year, amid widespread economic uncertainty. Global investors in particular are keeping their pockets tight, as they wait to see where the new centres emerge in global supply chains. According to Doshi, not only does India have enough dry powder to tide over this subdued global investment landscape, but it is also positioning itself to project itself as a low-risk, high-value investment destination. 

“With India determined to become a ‘self reliant’ country, the government has curbed corporate tax rates and assured further changes in the ‘Make in India’ initiative, to emerge as a favourable investment destination compared to its South Asian peers. This coupled with companies exploring restructuring of businesses and supply chain due to change in geo-economic dynamics, is expected to encourage transaction opportunities in the approaching years,” he said.

In related news, a recent L.E.K. Consulting study found that deal flow in Southeast Asia – India, the Philippines, Thailand, Vietnam, Indonesia, Malaysia and Singapore – has cooled significantly in the first six months of the year amid the Covid-19-induced downturn.