India is bucking the global trend with strategic M&A deal volume and value reaching all-time highs in 2022. Record levels of cash and availability of assets helped deliver a boom with deal volume up 36 per cent and deal value up 139 per cent in 2022. Bain & Company’s annual Global Mergers & Acquisitions Report, highlights the factors that have converged to create a robust environment for M&A in India.
Strong corporate balance sheets and ample private equity (PE) dry powder to deploy have contributed to the robust environment for M&As. Foreign direct investment has also held steady as India continues to be a global hotspot and attractive non-US destination for capital. Sellers are responding to high multiples and bringing more assets (and more quality assets) to the market—and acquirers are ready to move on them.
“We have seen four straight years of growing deal volume and value, with 2022 setting another record year. This is in stark contrast to the mood and momentum in the rest of the world,” said Karan Singh, managing partner, Bain & Company India and author of the report.
“We are seeing strong M&A activity across sectors, including financial services, utilities, manufacturing, and healthcare. Environmental, social, and governance (ESG) is a new theme and India is emerging as a hotspot for renewables. Confidence in the India growth story is giving executives the appetite to make bold moves,” added Singh.
Established domestic companies turned to M&A to consolidate. Scale M&A continued to account for over half of the deals in 2022, driven by the intent to strengthen market leadership and lower cost position through economies of scale and expansion to newer geographies. In India’s biggest merger announcement ever, HDFC, the mortgage firm, signed on to merge with HDFC Bank in a deal valued at $40 billion.
India’s conglomerates are making bets on new growth engines and future profit pools that offer higher multiples than their traditional businesses through scope deals. Adani’s $10.5 billion deal for Ambuja Cements and ACC makes it the second-largest cement manufacturer in India. Torrent Pharma bought skin care player Curatio Healthcare to strengthen that part of its portfolio. Also, many companies are buying online businesses and combining them with their offline presence to create omnichannel offerings for consumers. Aditya Birla Fashion and Retail bought controlling stakes across multiple brands as part of its effort to create a new digital-first house of brands.
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The report said fast-growing insurgents are aggressively buying start-ups. Start-ups that raised funds before 2022 are now utilizing war chests to acquire companies that have been unable to raise funds and are running out of runway. Consumer tech has seen the highest start-up consolidation followed by edtech and fintech.
“M&A activity is strong across the board, from conglomerates acquiring new value creation engines, to insurgents buying into new segments and acquiring new capabilities,” said Vikram Chandrashekhar, partner Bain & Company and co-author of the report.
Another emerging theme is renewable energy. The Indian government’s ambitious energy transition policies are opening up business opportunities. Renewable energy deals have seen significant accelerations as conglomerates as well as traditional energy companies are building their renewable presence in India.
India is also becoming a prime alternative for global companies that are eager to diversify their supply chains. In a way, India stands to benefit from recent supply chain disruptions. The shift is fueling deals in areas such as active pharmaceutical ingredients, specialty chemicals, and contract manufacturing. Here private equity players are acquiring serial assets and rolling them up to create one large platform.
While deal value globally and in Asia Pacific dropped 36 per cent and 22 per cent respectively, in 2022, Bain’s report confirms that deal activity continues to be a central corporate strategy for growth and profitability.
“Close to 65 per cent of executives we surveyed have said they expect M&A activity to stay strong in 2023, this is significantly higher than the global average of 37 per cent,” said Chandrashekhar.
Asset availability is also not expected to be a constraint in 2023. About 75 per cent of India-based executives expect that there will be more attractive assets available in 2023, significantly higher than the global average of 53 per cent. Multinationals are also viewing India as a more attractive destination and appear poised to double down on India as an attractive long-term market.