India’s bankruptcy code, stressed assets space to drive M&A activity in 2020

Photo: Mint

Dealmakers in India are at an interesting crossroads.

On one hand, activity pertaining to mergers and acquisitions (M&A) is continuing to witness a downtrend trend owing to a significant shortfall in big size deals, while private equity (PE) transactions, on the other hand, are signaling a northward journey.

Here’s a look at the numbers. In terms of deal value, M&A transactions recorded a whopping 69 per cent drop in the January-November period (2019) to stand at $27.14 billion amid concerns of a slowdown in the domestic economy, according to data available with Grant Thornton.

The numbers (or volume) of transactions, too, didn’t spell an impressive number – as many as 410 deals were clocked in the January-November period (2019), a 15 per cent decline from 445 transactions in 2018. In terms of marquee billion-dollar deals, as many as 14 transactions were recorded in 2018 compared to only four in 2019 – this in itself is a significant dampener.

If the current situation is in any way a precursor to the year to come, sentiments will be tepid in the immediate future “at least over the next three to six months as the question of recession or no recession continues to be debated in India,” says Pankaj Chopda, director at Grant Thornton India LLP.

However, with the long-term growth trajectory of India remaining intact, sentiments are likely to pick up during the latter part of next year.

Sectors that are expected to witness activity in terms of M&A in 2020 include financial institutions groups (FIG), infrastructure, energy, pharma and TMT (technology, media, and telecom), among others.

Also, with the Insolvency and Bankruptcy Code (IBC) gaining steam, “many more deals will happen in this area of practice,” says Girish Vanvari, founder at Transaction Square. This perhaps explains the much-talked-about $613 million acquisition of Ruchi Soya by Patanjali Ayurved in November 2019 that went on to become the largest deal of the month.

“The Government will also play an important role, be it for PSU deals, consolidation and or even bringing in more certainty on regulated sectors which will start making them attractive,” adds Vanvari.

On the PE front, there was as much as 56 per cent jump in deal value, despite a marginal 2 per cent increase in deal volumes. This shows investors increased interest in the country with opportunities opening up in various sectors including the new-age economy.

In terms of traditional PE activity, investors “will have an active pipeline across distress situations from domestic groups, which will see the sale of crown jewels of companies or division sales. Going forward, traditional growth capital PEs are expected to focus on liquid instruments such as pre-IPO and PIPE deals,” said Gopal Agrawal, co-head, investment banking at Edelweiss.

As against growth capital funding by PE firms, the year 2018 and 2019 have been rather active with several buyout transactions being clinched led by Tier-I players and several small (venture capital category) investments – a trend that is likely to continue going forward.

What’s interesting is that PE firms have also been able to out-bid global and domestic strategic players in competitive auctions, primarily driven by very aggressive leverage/financing terms from banks.

 

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.