While many Western markets continue to enjoy robust levels of M&A, but seem to have reached something of a plateau after several strong years, and a business cycle that has been in upswing for eight years, some developing markets are seeing dramatic growth in M&A.
Among major developing economies this seems to be especially true of India, which is currently seeing explosive growth in M&A. Already in 2018, the level of deals by value is higher than in the whole of 2017, which itself was the strongest year on record in India. So far in 2018, the aggregate value of deals has reached US$97.8bn, exceeding the US$92.3bn in 2017.
There are several forces which are being seen to some extent in many developing, and indeed developed, markets. Rapid growth in the middle class, sector consolidation, the response to digital and other technological disruption, debt reduction, privatisation and the sale of family businesses are powerful forces, as in many countries. But deregulation and legislative change in India are having specific impacts not seen elsewhere.
In particular, the Insolvency and Bankruptcy Code introduced in India 2016 has much simplified the process of receivership and administration, which enables the value within many businesses to be salvaged. Both trade buyers and private equity have been greedily taking advantage if the new opportunities that have presented themselves. There has also been extensive reform to the takeover code, to tax laws and to foreign exchange rules which have made for a much easier environment in which to do deals.
The growth in deal flow is both domestic and from overseas, and indeed there are even signs of Indian companies becoming much more active in overseas markets. From a relatively low base, the value of outbound deals has doubled already this year.
While the number of large deals is responsible for the eye-catching headlines in the value of deals, smaller deal flow is also strong. There have been 236 deals of more than US$100m involving Indian companies so far this year, with cross-border deals having doubled. Walmart’s acquisition of a controlling stake in Flipkart for US$16bn especially alerted the world to the value that overseas multi-nationals see in Indian technology. But it is by no means the case that strength at the top end of the market is obscuring weakness lower down the food chain. Indeed the reverse is true with domestic deals, which are typically smaller, have trebled.
Analysts point to technology, telecommunications, industrials, and energy as being especially vibrant markets, while they say that utilities, natural resources and transport remain relatively becalmed. But overall many echo the words of Ganeshan Murugaiyan, managing director and head of investment banking for India at BNP Paribas, that “The M&A situation is very active and there are several deals under discussion in the strategic and private equity domains.”
JP Morgan, with its long standing franchise has been a particular beneficiary in M&A advisory work, with as much as 42% of the deal flow by value, with Goldman Sachs and Citigroup the other leading players. But many international banks are seeing growth in their India offices, and among domestic players Arpwood Capital stands out for the strength of its M&A franchise this year.