A review of India's M&A, equity investments and exits market in 2020

03 February 2021 Consultancy.in 5 min. read

International consulting firm Nexdigm (SKP) has released its full year review of India’s mergers & acquisitions market, providing insights into 2020’s developments in deals, equity investments, and exits. A roundup of the key findings.

According to the researchers, despite the severe global economic distress induced by the Covid-19 downturn, India’s mergers & acquisitions market remained resilient, in fact performing better than the year previous and second only to the phenomenal performance of 2018. Total transactions value stood at $85.9 billion. 

Mergers & acquisitions

M&A was the largest contributor to the deal landscape, nipping just ahead of equity investments. Deal value reached $42 billion, however, the pandemic’s wrath was more pronounced in deal volumes, with the number of deals hitting a five-year low. 

Deal trends

The key deal driver was consolidation on opportunity-driven acquisition, with obvious segments such as telecom, financials, consumer discretionary and industrials the most in-demand. In these four sectors, big-ticket transactions amounted to around 50% of the deal value. The IT segment led the way in terms of deal volume as the need for cloud computing and cybersecurity services surged with remote operations.

“Another section of buyers leading M&A activity this year has been private equity backed players, as investors aim to enhance their portfolio’s marketability for monetisation through tuck-in acquisitions. Start-ups in spaces such as EdTech and e-health have steadily bought out companies to diversify their portfolio,” explained Maulik Doshi, a Senior Executive Director in Nexdigm’s Transaction Advisory practice. 

Distress-fuelled divestments was also a good performing segment, as several companies were compelled to restructure and divest their stressed and non-core assets to deleverage their balance sheets and sustain core growth plans debt reduction and portfolio enhancement/diversification.

Mergers and Acquisitions

Doshi added that the outlook for mergers & acquisitions in 2021 is brighter: “with signs of staggered recovery with an upcoming pipeline of deals, the rebound in deals is expected to continue in 2021 as the economy becomes more stable.” 

Equity investments

With a value of $41.1 billion, and deal volume almost at par with the previous year, equity investments enjoyed a “phenomenal performance” said the authors. This was driven by 11 deals crossing the $1 billion mark in the telecommunications, financials and consumer discretionary sectors.

Notably, the start-up environment carried much of the equity deal volume, comprising 85% of the total deals in 2020. Doshi: “With trends similar to M&A, the growing need for digitisation and automation has propelled information technology to lead with close to 700 deals. The imperative shift in education delivery has increased investor focus on EdTech providers as over 90 start-ups received funding this year.”

Equity Investments

Healthcare was another bright spot. “India’s position as a forerunner in drug manufacturing, an essential aspect in the current climate, and the government’s determination to reduce dependence on imports reinforced investments in the healthcare sector. This year, the sector witnessed over 100 deals at undeterred valuations as past advantageous exits drive investor confidence.” 

Private equity exits

Continuing its slide on 2019, private equity exits witnessed more of a downturn in 2020, with transactions only worth $2,735 million. Deal volume reduced by 16% compared to 2019, scaling down the average deal size by 40% to $21 million. The information technology and financial services sectors contribute most proactively to the exit deal volume, at around 55% of the total.

Looking ahead, Doshi said that signs of recovery are emerging, as investors expect their portfolio to recoup in 2021 on the back of a better economic landscape.

Private Equity Exits

Big ticket deals

Among the big ticket deals that rocked India’s deals landscape include: ADP acquired a 49% stake in GMR Airports for $1.51 billion, Adani Ports and Special Economic Zone acquiring a major stake in Krishnapatnam Port for$1.43 billion, Yes Bank raising funds $1.35 billion worth of funds, Canadian investor Brookfield Asset Management buying core real estate assets of RMZ Corp for $2 billion, and the 51% stake acquisition worth $1 billion by Abu Dhabi Investment Authority and Public Investment fund of Saudi Arabia in India’s Jio Digital Fibre.

“Even as the GDP forecasts for 2021 improve to over 8%, policy implementation and the mapping out of announcements made in the Union Budget will be key for economic recovery. Overall, we expect the trends of 2020 to largely continue in the coming year,” concluded Doshi. 

According to Bain & Company, India last year maintained its position as Asia Pacific's second largest deal market.