India’s corporate terrain is undergoing a significant transformation as Indian conglomerates drive M&A activity, a field traditionally dominated by MNCs and PE firms. These legacy Indian companies are utilising their extensive knowledge of the local market and robust financial capabilities to execute strategic takeovers, effectively reshaping the landscape of India’s business world.
2022 marked an epochal moment as M&A deals in India crossed $160 billion. Strategic M&As represented $126 billion, while PE transactions contributed $37 billion. Rising consumption demand, strong corporate balance sheets and a period of low-interest rates propelled a 126% jump in strategic M&A value from the previous year.
The development marks a change in the power equation, with large segments of the M&A space now having domestic challengers compete effectively with foreign capital. Local companies are investing heavily to scale up operations, establish market/geographical dominance or expand into relevant adjacencies. On the supply side, unexpected market disruptions are forcing scattered capacities to consider selling out. In a remarkable change from the past, Indian promoters are exiting businesses not out of distress but as a calculated move.
These corporate ambitions played out with tactical moves like HDFC merging with HDFC Bank in a $57 billion transaction, and Adani Group bringing back the Holcim cement assets by acquiring Ambuja Cement and ACC for $9 billion. The trend consolidated in the last two years with deals like GlaxoSmithKline Consumer Healthcare’s merger with Hindustan Unilever, Tata Group’s acquisition of BigBasket, and Zomato’s acquisition of Uber Eats, followed by Blinkit.
As newly emboldened domestic conglomerates see opportunities to buy established businesses, they compete with foreign PE firms. This shift has made transactions beneficial for both sellers and buyers. Recently, domestic detergent player Nirma outbid several PE firms to acquire Glenmark’s life sciences business for nearly $1 billion. Deals that would have been once eyed only by PEs are now falling into the laps of local giants. The acquisition of Air India epitomised this, with Tata Sons outbidding others.
This trend appears poised to continue as Indian conglomerates are prepared to use their strong balance sheets to invest heavily in scaling operations, take advantage of market disruptions and explore sustainable avenues. At the same time, PE and VC firms selectively await the most suitable opportunities to deploy dry powder.
In H1 FY2023, strategic M&A and PE activity in India was relatively subdued, reflecting the global economic climate. According to a Grant Thornton Bharat report, the healthcare and life sciences sectors were a notable exception, seeing an 85% surge in overall deal value compared to the same period in 2022. This included high-value transactions like Temasek increasing its stake in Manipal Hospitals, Blackstone’s capital infusion into CARE Hospitals and KIMS Health, and Serum Life Sciences’ investment in Biocon Biologics, among others.
Despite the global challenges of high interest rates and geopolitical uncertainties, the economy remains resilient, buoyed by rising domestic demand and sectoral recovery. The outlook for H2 FY2023 and FY2024 looks positive, suggesting a resurgence in deals as market valuations stabilise. The financial health of the Indian companies is underscored by data from S&P Global Ratings, which projects a remarkable 50% increase in EBITDA by FY2024, while debt levels remain stable. This reflects a positive outlook for the corporate sector, demonstrating the strength of India’s economy in the face of global adversity.
India’s resilient GDP growth rate, status as the fifth-largest and fastestgrowing global economy, structural reforms and enhancements in the ease of doing business continue to attract diverse international investors, notably from West Asia, Canada and Singapore, besides the US and Britain.
As we look to 2024 and beyond, while investment in IT services may decelerate, industries that demand long-gestation capital, such as healthcare and life sciences, banking and financial services, logistics and, notably, infrastructure and industrials, are positioned to see more capital inflows In the face of an unprecedented pattern of takeovers by India Inc and a Revenues in Women’s Sport Set to Cross $1bn NEXT STORY rebound in foreign funding, smaller debt-ridden and global competition facing firms are disadvantaged against their larger counterparts, prompting a survival-of-the-fittest environment where smaller firms must innovate and scale up or sell out.
The anticipated market amalgamation and a recalibration of company worth will favour enterprises that provide innovative solutions and economically viable and sustainable business models, making M&A a vital tool in the continued evolution of India’s business and economic landscape. As India Inc navigates through this transformative phase, it is poised to emerge on the global stage with a more refined and resilient business ecosystem — one deal at a time.
By Manisha Girotra,