Deal value in India takes a hit amid global uncertainty
A variety of factors has dragged the total deal value in India down in 2019 compared to record breaking numbers booked the year previous, according to a new year-end review from PwC. The Big Four accounting and advisory firm attributes this decline, in part, to a dip in the number of megadeals last year.
2018 was a record year for deals in India, with PwC's estimates placing overall deal value at $120 billion for the whole year. In the summer of 2018, EY reported that the number of initial public offering (IPO) deals in India had surpassed the rest of the world, and the momentum persisted till the end of the year.
The relative success compared to the global market was both the product of a thriving Indian business environment, as well as a dampened global scenario. The trade war between the US and China is an example of the many geopolitical developments that have affected deals activity globally.
In 2019, developments on the global stage started taking its toll on the Indian market. PwC reports that deal volume in India last year amounted to $73 billion across more than 1,500 transactions, with much of this decline attributed to an “overall decline in the global business atmosphere”.
However, a more long term view shows that performance was not as bad as the numbers signify. While deal volume in 2019 fell short of the 2018 figure, it lies ahead of the volume recorded in 2016 and 2017.
Transactions backed by private equity remained largely consistent between 2018 and 2019, amounting to roughly $40 billion across both years. 2018 was already a strong year for private equity in India, indicating a continuation of strong momentum.
What has changed in the market, according to PwC, is the size of the deals being completed. “This slowdown in deal activity could be primarily attributed to fewer billion-dollar bets in 2019. 2018 witnessed 25 megadeals in comparison to 2019, which recorded only 11 deals, each valued at over a billion dollars,” said the report.
Prior to last year, large deals in India had been steadily on the rise, particularly since the Insolvency and Bankruptcy code was passed in 2015. In a recent analysis, global management consultancy Bain & Company uncovered that 60 large deals in excess of $250 million were closed between 2015 and 2018.
This momentum appears to be simmering down in India, driving down average deal value. One encouraging trend, on the other hand, is that the volume of inbound deals is increasing. PwC reports that inbound deal activity constituted more than 30% of all merger & acquisition (M&A) deal value last year, compared to 28% in 2018.
“Inbound activity amounted to around $12 billion during the year in comparison to 2018, which saw deals worth $22.4 billion and which included a noteworthy capital infusion in the e-commerce space,” stated the PwC report. The surge is further exemplified by an increase in deals involving sovereign wealth funds (SWFs).
India has long been touted as an attractive market for foreign investment, in light of promising indicators such as a young and increasingly tech savvy population and a thriving IT business environment. However, the initial excitement around the Indian market has also deflated to some extent.
McKinsey & Company Asia Chairman Oliver Tonby recently discussed how global businesses are growing weary of investments in India, as they grow familiar with the unique intricacies and challenges to an economy of such scale.
