M&A and equity investment situation of India in 2020
While the world is experiencing a significant decrease in merger and acquisition (M&A) deals India has rather experienced a different outcome. The M&A and equity investments have suffered but in the second quarter, things started to gain momentum. This growth is highly favored in technology and healthcare space. The private and public sector started joining hands and government made the way for eHealth — telemedicine sector. Technology has been the core of the deals. India moving digital has encouraged a large number of technological deals. The biggest equity investment in Q2 was the Jio platforms deal with Facebook of $5.7 billion. This deal alone accounted for 60% of the total equity investments in India. Still, the technology sector was favored with deals in e-commerce, software as a service (SaaS), consumer tech and FinTech. The healthcare sector also saw considerable equity investments. Outside of this, the average deal size was of $12 million which is lower than the last year. Overall, the private equity deals were down by 8% since last year.
There have been 292 M&A deals by the end of Q2 with Gujarat being the top region for deals. The total equity investments by the end of Q2 were 569 with healthcare technology acting as the emerging technology. Gujarat is the most favored region for equity investments. This mean companies in Gujarat have dominated M&A and equity deals in India in the first half of the year. Some of the biggest deals till now are Facebook investing $5.7 billion in Jio Platforms, Group ADP $1.5 billion investment in GMR Airports, $1.4 billion into Yes Bank by consortium of banks led by State Bank of India (SBI), Adani Ports investment of $1.4 billion in Krishnapatnam port.
Some of the recent deals are Reliance Retail acquiring Future Group for $3.4 billion which is still pending due to protest from Amazon. However, if successful this deal will strengthen Reliance retail’s dominance in the Indian market. This means Reliance retail will have authority over Future Group’s Big Bazaar, FBB, Easyday, Central, Foodhall formats, spread in over 420 cities in India. Google’s deal of $4.5 billion investment in Reliance Jio platforms for a 7.7% stake. The deal is to collaborate for building a low-cost phone. This deal will likely change India’s low-cost smartphone segment. If Jio-Google adopts a similar strategy as Jio sim, then the low-cost smartphones will get cheaper and the margins will be shrunk. The deal also includes telecom, fibre, music and movies app business. Overall 2020 has been dominated by M&A deals and equity investments by Reliance Group.
M&A and equity investments are experiencing certain trends. After Q2, it is confirmed that only the major companies with a huge amount of resources were investing and acquiring equity. This is shaping a partial economy with big players with unlimited resources acquiring smaller groups. Furthermore, the trend also depicted big players helping each other to acquire a larger amount of COVID damaged companies. According to Mckinsey report, there are companies with funding adequate for 6 months of operations while others have funding for only 30 days. This has led to a decrease in the market-cap-weighted valuations. This may lead to a partial economy owned by major conglomerates. Companies with cash reserve equivalent to survive for a longer time would eventually dominate, acquire or merge with weak companies. Another trend is the increasing demand for some goods and services. This gap has emerged because of high uncertainty. Consumers are relying on essential goods and services. This is also pressurizing the companies. Many companies offering non-essential products and services are uncertain about their survival. Some companies offer both essential and non-essential products and services. Some of these companies would fall or change their portfolio completely to suit the demands. These trends will continue to reshape the M&A and equity investment deal activity till the end of 2021.
Note: The article was published with Nobat Newspaper on 06 Nov 2020 in Gujarati language. Above is the English translation of the same.
