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Mergers & Acquisitions volume hit 5-year low in 2021: India Investment Ecosystem Report 2021

Mergers and acquisitions in India were a mixed bag this year witnessing a sharp fall of 20% in terms of deal volume, a five-year low, as investment managers focused on saving cash in times of coronavirus-induced uncertainty. The deal activity in terms of value, however, saw an uptick of about 13% on an on-year basis, helped by Mukesh Ambani’s Reliance Industries Ltd (RIL), according to a report from wealth manager IIFL Wealth.

India Inc witnessed a reduced M&A activity across all categories reaching a five-year low of 709 deals. “The fall in deal activity was the resultant impact of COVID-19, with key managers focusing on conserving cash. The outbreak has disrupted established working practices, posing significant challenges for M&A acquirers to overcome,” according to the India Investment Ecosystem report, published by IIFL Wealth & Asset Management and VCCEDGE.

Foreign investors bullish despite coronavirus-induced uncertainties

Despite the slow pace in M&A activity, key investments in India by foreign tech giants, helped in striking a balance. For instance, investment by U.S. tech giants Facebook, now Meta Platform, and Alphabet Inc’s Google, to buy 17% stake in Reliance’s Jio Platforms was one of the biggest inbound deals this year.

“Despite the macroeconomic uncertainties, foreign buyers remain bullish on investments, with firms looking to combine synergy to a battle business downturn,” according to the report.

In terms of value, the uptick in M&A activity was driven by RIL. Reliance accounted for at least $13.57 billion worth of deals, according to the report, which cited M&A data from the period between April 2020 and September 2021.

Reliance has also been a winner in terms of domestic deals. The company, through its subsidiary, Reliance Retail Ventures, proposed to acquire Kishore Biyani’s Future Enterprises’s retail unit for $3.34 billion last year. 

IT sector: Biggest chunk of the M&A pie

Both in terms of volume as well as value, information technology (IT) and consumer sectors carried the biggest chunk of the M&A pie. The IT sector topped the charts recording an investment of $14.99 billion in FY2021, which is 2.84x compared to FY2020. While for the first half of this year, deals totaled $9.21 billion for the sector.

One key example is PayU Payments Pvt. Ltd’s proposition to buy payment gateway service provider Billdesk for about $4.70 billion. This is the second biggest deal after the deal between Jio and Facebook-Google this year in the internet software & services sector.

Even in terms of deal volumes, IT ranked amongst the top three sectors with a total of 257 deals in FY 2021, though witnessing a fall of about 20% from 2017 level. In H1 FY2022, the sector topped the sectorial deal activity chart with 150 deals, followed by consumer discretionary sector with 55 deals and industrials sector with 49 deals.

Dull activity in startup space

M&A activities for startups were dull during the pandemic, the report noted, adding that the deal volume and value dropped 27% and 59%, respectively.

“The market witnessed many consolidations in the Edu-Tech sector. Byju’s became even stronger by acquiring WhiteHatJr., Scholr and LabInApp Technology to scale the new platforms,” according to the report.

In the coming days, with the fear of another wave looming, M&A activity is expected to remain dim. “M&A deals ecosystem will remain affected until the COVID-19 uncertainty exists,” the report concluded.

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Financial Express