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Mergers and Acquisitions in India Have Reached Record Levels in 2018: Report

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In the last one decade, merger and acquisition activities in India have boomed, with as many as 600-750 Indian companies getting acquired annually with an average ticket size of Rs 200 crore, according to a new report.

More than 3,400 Indian companies in both public and private segment have been active in M&As over FY10-18, a report tilted “Value creation: Laying the foundation for mergers and acquisitions” by PricewaterhouseCoopers (PwC) and the  Confederation of Indian Industry (CII) showed.

“India has seen M&A activity in excess of $120, $180, and $345 over the last three, five, and 10 years, respectively, representing a CAGR of 13.2%, 13.7% and 4% for the respective periods,” Sanjeev Krishan, Partner and Leader, Deals and Private Equity, PwC India, said. “At the same time, inbound M&A accounted for 25%, 23% and 29%2 of the overall foreign direct investments into the country in the same period. M&A in FY18 alone accounted for 6% of the aggregate gross capital formation. It is pertinent to note that the growth in value of M&A deals in Q1 FY19 was nearly tenfold as compared to the same period last year, while GDP registered a 7.3% growth over last year.”

Transactions involving Indian companies reached $104 billion in 2018, surpassing the previous annual record with four more months to go for the year to end, Bloomberg reported. Krishan said that the  tally may surpass $100 billion in 2019 as well.

Large or listed companies pulled more weight in M&A deals in India, the report said. Of the over 6,000 M&A transactions during FY10-18, 900 were done by the current BSE 500 companies. While transactions by BSE 500 companies account for only 15 percent of total M&A volume, they comprise more than 52 percent by value, indicating that larger companies have been acquiring larger targets for 3-5 times the average deal size compared to the overall group.

The report further said that M&A trends (number and average value of transactions) have been similar for BSE 500 as well as other companies, indicating a close linkage of M&A with macroeconomic and sector trends.

A new bankruptcy law, the race for domination in the e-commerce war, and investments from wealthy Asia-focused private equity funds have created an opportunity for deal-making in the world’s fastest growing economy, according to Bloomberg. Walmart’s $17 billion acquisition of India’s largest e-commerce company Flipkart, Warren Buffett’s investment in Paytm, and with Alibaba and Tencent of China, and Amazon looking to invest in Indian companies, the consumer sector has become a goldmine of M&A activities in India.

India’s new bankruptcy law too will add to M&A activities, Bloomberg said. As more and more defaulting companies fall in the bankruptcy basket, they will be up for grabs.

However, over the last eight years, valuation multiples in India have not significantly increased, the PwC-CII report said. While EBIDTA and revenue multiples have seen an upswing, the median EBITDA multiples for all transactions have remained within a tight range of 9.5-10.4 times over FY10-18, belying the belief that deals are getting more expensive. But larger companies are more discerning of value as for BSE 500 companies, the median EBITDA multiples have been in a wider range of 8.0-11.7 times and median revenue multiples in the 1.4-2.3 times range, indicating that larger companies are looking for good deals and are willing to pay a premium for attractive companies to drive growth and deliver values to their investors and customers.