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Why India Inc. is Seeing an M&A Spree

Often, it’s just gut feeling. Ask dealmakers how they identify an opportunity and this is the most likely answer. It helps them spot a transaction ahead of time and quickly plan on making that big move. One such instance is the recent buyout of Holcim’s India assets by the Adani group.

Narrating the sequence of events, a veteran investment banker says it was clear to him in early 2018 that the Switzerland-headquartered cement major was having a relook at its India business. A year before that, the two companies that Holcim owned here—Ambuja Cements and ACC—independently spoke of considering a merger. Suddenly, everything went cold. The symptoms were all there. “As competition was acquiring assets in a hurry, the lack of action at Ambuja and ACC stood out,” he says. At that point, murmurs abounded that the time taken to acquire land or limestone reserves had been frustrating for Holcim. In reality, they were merely biding time since a decision had all but been taken. First, in mid-2018, the merger plan was dropped and, finally, this May, the 70 million tonnes of cement manufacturing capacity that the two companies owned exchanged hands, with the Gautam Adani-headed group sealing the deal for $10.5 billion.

Now, for almost a year and a half, the activity levels on deal street have remained unabated—data from Dealogic says the total value of India-targeted M&As for 2021 was $109 billion, while the number for 2022 (till early May) stood at $96 billion, not including the Adani buyout. The joke among bankers is that this period is seeing “pent-up frustration” after the pandemic. The mood is enthusiastic, the amounts being spoken of are not small, activity is across sectors, but with some marked differences from the past. India Inc. is not craving for overseas assets, although there is no paucity of funding. There are good businesses to be bought in India and it’s not just the companies in the midst of action. Private equity (PE) funds are acquiring controlling stakes as opposed to the minority holding or perhaps a board seat they normally settled for. PAST AND PRESENT Just what is driving this M&A frenzy? A closer look reveals it is only a culmination of what has taken place over the past seven years. The period between 2015 and 2020 revolved around companies in distress. Prominent deals concluded then include the acquisition of the Ruia family-promoted Essar Oil by Russian energy major Rosneft; Tata Steel’s buyout of Usha Martin’s steel business; Hathway Cable and Den Networks selling out to Reliance Industries; and the Murugappa Group taking over the scam-hit CG Power.

The tipping point, say investment bankers, was Rosneft cutting a cheque for $12.9 billion to acquire Essar Oil. Reeling under debt of over Rs 1.8 lakh crore before the deal, the Essar group, with a presence in steel, power and oil, was under tremendous pressure from lenders—a consortium led by the State Bank of India and ICICI Bank. A former SBI official recalls a meeting when the message from the bank’s top brass, at the peak of the Rosneft deal being negotiated, was devoid of any ambiguity.

“We have to get our money back at any cost. This deal is critical,” was all that was said. Lenders, at that point, were a harried lot with the poor quality of borrowers in India across many large industrial groups not helping their cause. The sale of Essar Oil took place in August 2017 and the ushering in of the Insolvency and Bankruptcy Code (IBC) around that time opened the floodgates for the sale of good assets that had been managed poorly. From distress, the next step shifted towards the potential acquisition of names such as Bhushan Power, Essar Steel, Alok Industries, Electrosteel Steels, JP Infra, Monnet Ispat and Lanco Infratech. This phase also saw the “forced exit” of cement company Lafarge from India, which, together with Holcim, would have had a monopoly in the eastern part of the country. Lafarge sold its cement capacity of 11 million tonnes to the Nirma group’s cement entity for $1.4 billion—the deal was necessary to complete the global merger of Holcim and Lafarge.

Cut to the period starting 2021 and M&As have been flying thick and fast. The successful sale of distressed assets and the IBC seem to have provided the impetus. Now, India Inc. boasts of companies with better-looking balance sheets, and firms are on a stronger wicket, with default not being a monster in the room. A more efficient corporate culture has led to banks being willing to lend large sums of money—the end result is high levels of liquidity in the system, allowing groups and companies to get very ambitious. Raj Balakrishnan, Head of Investment Banking at Bank of America, says that the current M&A story is driven by strategic drivers for acquirers and sellers. “The availability of liquidity is an enabler, but the key driver continues to be strategic rationale. For example, Shell’s acquisition of Sprng Energy is driven by its desire to be positioned as one of the first movers in building a truly integrated energy transition business in India,” he says. In line with the theme of strategic M&As, one has seen the HDFC-HDFC Bank merger or LTI and Mindtree coming together to create India’s fifth-largest IT firm.

The inorganic route saves time and, if negotiated well, brings to the table a good asset at a fair valuation. Pritish Kandoi, EVP for Investment Banking at ICICI Securities, reckons M&As are explored to meet shareholder expectations of growth and returns. “Deals are typically driven by a need to build scale in a short time, enter new geographies, add new products/service lines, or build capability around customer experience and distribution.” He cites the example of BYJU’S investing over $2 billion for 11 acquisitions, including the purchase of Aakash Educational Services, an online test-prep company. “Here, it was to build an omni-channel vertical for its test-prep vertical. There is also the case of PharmEasy with its multiple acquisitions to enter new verticals, which included a significant majority stake in Thyrocare to strengthen its high-margin testing business by tapping into Thyrocare’s network of collection centres,” says Kandoi.

The M&A story continues across large business groups. For instance, Reliance has made buyouts in areas like renewable energy, retail and fashion, while Adani, too, has made big moves in renewables, ports, FMCG and, of course, cement. Then, the Tatas acquired Air India from the government and in two years, concluded 21 deals, while the Mahindra group decided to exit loss-making SsangYong (which it had acquired in 2010), as it has been in the red for a long time, though it is yet to find a buyer.


The cross-border outbound story in the past, especially in the period starting 2007 for about five years, saw frenetic levels of activity. That is not as prominent today and is one more indication of how the M&A story has changed.

Bank of America’s Balakrishnan thinks the theme continues to be played selectively by Indian companies in spaces where there are material synergies. “For example, in IT services, we worked with Wipro to acquire Capco (a deal struck last year for $1.5 billion). However, in several other sectors, Indian groups have found significant opportunities driven by rapid growth in the Indian market and, hence, continue to play this story,” he says.

Speaking of IT, C. Vijayakumar, CEO of HCL Technologies, says making a buyout overseas will today need to be “capability-based”. That thinking is in line with a new set of market dynamics. In late 2018, his company acquired select IBM software products for $1.5 billion. “Three years ago, it was all about the product business for us. Now, the task on hand is to grow it. As things stand, there is no need for that big-ticket buyout.”

Ganeshan Murugaiyan, MD and Head of Corporate Coverage & Advisory at BNP Paribas, agrees with the point on capability and points towards other sectors such as pharmaceuticals and auto components. “It will be a combination of penetrating new geographies and filling specific product/capability gaps,” he says. A flashback to the phase between 2005 and 2007 throws up deals like Dr. Reddy’s buying Germany’s Betapharm for $560 million, or the spate of transactions that Suzlon did that were caught in the crossfire of regulation, high valuations and also an incorrect assessment of the market. The end result was high debt and a lot of time lost. Likewise, Bharti Airtel’s buyout of Zain’s Africa business for $10.7 billion in 2010 was a complicated one and the price war later in the domestic market was a double whammy. “The acquisitions in the early 2000s were driven by the objective to be more global... The scenario has now changed given the growth opportunities in India are much superior. Hence, overseas buyouts are now more targeted and strategic in nature,” says Murugaiyan.


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