EY: India to see healthy M&A activity driven by domestic deals

29 January 2018 Consultancy.in 3 min. read

As India moves into the top 100 countries for ease of doing business, Mergers & Acquisitions (M&A) activity in the country is expected to grow strongly over the next year, according to global professional services firm EY. More than 50% of Indian executives predict some form of M&A activity for their firms this year. 

Market trends across the world, and particularly in India, are ripe for M&A activity. Big Four professional services firm EY’s Capital Confidence Barometer (CCB) for 2017 suggests that economic conditions such as domestic consolidation, market share expansion, and new market entry are all creating an environment in India that is conducive to deal making.

Similar to the rest of the globe, India is riding a wave of digital advancement, as a result of which innovative startups are emerging rapidly, posing a significant threat to larger industry players. In response, incumbents of the industry are either: bolstering their own digital capabilities in the country, such as Deloitte this year and Grant Thornton earlier last year; partnering with the smaller innovative firms; or going on acquisition drives to engulf smaller operations.

As a result, the expectation for growth in the M&A sector over the next year has grown substantially. In last year’s CCB, 39% of the executives surveyed expected their firm to engage in some sort of M&A activity in the following 12 months. This year, that percentage rose to 55%, in light of a 90% positive response to the macroeconomic scenario in the country.

M&A OutlookIn addition to their individual firms, 64% of the respondents surveyed expected an overall improvement in the domestic M&A market, which is strikingly higher than the 27% recorded last year. 69% of the respondents, meanwhile, expect deal pipelines to improve as well, particularly in light of a Rs. 2.1 trillion capital infusion into public sector banks.

In terms of concrete deal closures, the number of executive anticipating a spike in the number of closures has nearly doubled from last year’s value to reach 74%. Indian executives don’t necessarily expect too much competition from Private Equity funds, with 20% expecting the same, although 26% believe that PE has the potential to make a significant impact on the M&A sector in India.

In light of a booming consumer market, most Indian executives (31%) cite changing consumer behaviour as the biggest disruptor to the current market. Predictably, digital transformation and increasing competition for digitally enabled players drew the second and third highest number of responses, at 28% and 24% respectively. 62% of the respondents expressed an interest in partnering with or acquiring smaller digitally savvy firms.

In summary, the report states, "Overall, the outlook for M&A deal activity in the Indian market looks promising as companies embrace the on-going sector convergence/digital disruption and explore inorganic avenues to charter growth against a backdrop of supportive economy and easing credit conditions.”