Deal activity in India: Annual review and outlook for 2020
Global tensions, the public market woes in India and the challenges of living up to 2018’s record-breaking levels made 2019 a tough year. In PwC’s report, Deals in India: Annual review and outlook for 2019, we highlighted certain drivers for deal activity in India. These were expected to contribute significantly to India’s deal activity this year.
In this report, we take a look at how those predictions for 2019 have panned out.
Continued interest from foreign investors
Inbound M&A deal activity in India alone accounted for 32% of the M&A deal value this year, an uptick from 28% in 2018. In addition to corporate players, private equity (PE) investment from global players continues to gravitate towards India, with private equity investment values surging over the last two decades.
Inbound M&A deal activity in India alone accounted for 32% of the M&A deal value this year
Growing interest from sovereign wealth funds (SWFs)
2018 highlighted capital infusion from sovereign wealth funds and pension funds (SWFs) in India. As expected, the interest from these funds continued on an upward trajectory in 2019 and should continue in 2020 as well. SWFs from Singapore, Abu Dhabi and Canada have been a part of some of the largest PE investments in India this year. SWFs involvement in PE deals was 24% in 2019, compared to 23% in 2018.
In 2019, SWFs involvement in PE deals was 24% in 2019, compared to 23% in 2018
Big billion bets in PE and M&A deal activity in India
This year, deal volume continued on a downward trend, and there were fewer billion-dollar deals compared to 2018. While PE witnessed a minor decline from seven big-ticket deals in 2018 to five in 2019, M&A activity in India accounted for a major share of the decline. Despite this slowdown, deal values are still on an upward trajectory with deal volumes declining, indicating an increase in the average ticket size.
In 2019, there were fewer billion-dollar deals compared to 2018
Consolidation will be a key driver
Adapting to new-age technologies and scaling up operations are some of the factors driving consolidation in India. Over 57% of the deal value in M&A was contributed by domestic deals − up from 54% in 2018.
Over 57% of the deal value in M&A was contributed by domestic deals
Secondary sales as a preferred exit mode
2019 has witnessed a sharp decline in PE exit activity in India in terms of value and volume, recording 185 exits worth a little over USD 9.5 billion. Public market sales accounted for the largest share of the exit value this year, up 45% compared to 2018. Open market transactions accounted for the highest share of the exit value within public market sales, while initial public offerings (IPOs) witnessed a 67% drop in comparison to last year. Secondary sales and buybacks amounted to nearly USD 2 billion each.
185 exits worth a little over USD 9.5 billion were recorded in 2019
Technology in the lead
Regarding sector-wise PE investments, despite a marginal decline in deal values, the technology sector retained its position as the most attractive segment for PE investors. Technology witnessed investments worth nearly USD 10 billion in 2019, accounting for 28% of the investment value this year.
Technology witnessed investments worth nearly USD 10 billion in 2019
What about the future?
While PE activity remained robust, M&A deal activity in India was off to a good start during the first six months of the year and experienced a notable slowdown in the latter half. A more conducive deal environment backed by effective reforms and better governance would further boost sentiment and attract investments.
With the risk of a recession on the horizon and continuing trade concerns, growth levels could be tepid for a while. Despite measures such as cuts in the repo rate and corporate tax, fiscal policies aimed at reviving the capital cycle and economy in general could be an additional trigger in 2020.
