Mahesh Singhi, founder and managing director of Mumbai-based transaction advisory firm Singhi Advisors, has been on the forefront of investment banking in India for above two decades across sectors in private equity, debt and mergers and acquisitions (M&A). In an interview, Singhi comments on the current deal making environment and investors’ sentiment. Edited excerpts:
Private equity volume has declined significantly in the first quarter. Are the soaring valuations in public markets keeping PE funds away?
Yes; we do believe that high valuations in the listed space are impacting transactions in the unlisted space. The reason could largely be attributed to investors waiting to see exit performance improve in the aftermath of a funding crunch that has taken hold.
Currently, appetite for risk is low with consolidation, job cuts and roll-back of funding plans are underway. In our view, M&A will continue to remain of interest to financial and strategic investors in sectors like technology, life sciences and financial services.
Consolidation and fund raising would continue to spur the momentum dominating M&A specifically in the financial services, infrastructure and the life sciences sector. In financial services, the possibility of new business models emerging post demonetization, continued fund raising by NBFCs and a consolidation push by micro finance firms will play a big role in driving M&A activity.
Trends anchored on large transactions and consolidation across sectors are driving deal value and are expected to remain strong this year too.
Distressed assets resolution has been a dominant investment theme for a while but very little has happened on ground. Do you see that changing with the new regulations?
As far as Singhi Advisors is concerned, we are sitting on a good pipeline of deals in the making and our special focus this year will be distress asset M&As, given the high number of stressed companies gearing up for deals.
We see a huge business opportunity in government steps to address India’s mountain of soured loans.
The stressed assets space will be the next big theme to play. When decisions are taken in a time-bound manner, there is a greater chance that the corporate entity can be saved as a going concern, and the productive resources of the economy (labour and capital) can be put to the best use.
This is in complete departure from the earlier regime where there were delays leading to the erosion of the firm’s value.
What will be key drivers of M&A activity going forward? Do you see more strategic deals in the offing?
We expect to see more PE/ VC backed M&A exits, with an increase in the share of inbound FDI investment into India. Most large international PE fund heads are looking to deploy investments worth billions of dollars in India from both global as well as India-specific funds over the course of the next few years.
This coupled with the significant increase in dry powder with India-focused funds (estimated to be at six year high of $7.1 billion) can lead one to have a sanguine outlook about PE/VC investments and PE/VC exits in 2017.
Which sectors according to you will see higher deal activity ?
Select sectors like technology, life sciences and financial services are expected to attract significant investor attention in 2017. Consolidation and fund raising will largely steer the M&A momentum specifically in the financial services, infrastructure and the life sciences sector. Deal activity in the insurance sector will be driven by consolidation, coupled with the shareholding changes driven by FDI regulations. These twin themes will also favourably impact the deal activity for healthcare, while outbound M&A for pharma will anchor on Indian companies’ evaluating opportunities to consolidate in the regulated markets.
For infra, Infrastructure Investment Trusts (InvITs) is an emerging theme in 2017 as interest rates soften, coupled with their ability to provide low-cost financing.