Despite Covid-19, M&A and PE deal value rose by 7% to $80 billion in 2020

Deal values of private equity investments and Merger & Acquisitions, at an aggregate level, stood at little over $80 billion in 2020 as compared to $74.8 billion in 2019, up by around seven per cent. Around 25 per cent of this deal value could be attributed to sizable inbound investments in Jio Platforms.

Strategic deals (mergers and acquisitions [M&A]) accounted for over 50% of the total deal value this year, while private equity (PE) activity kept pace with last year, recording investments worth $38.2 billion, according to PWC's Deals in India: Annual review and outlook for 2021 report.

The report states that uncertainty was the key area of concern for the investors across the globe in 2019, while in 2020, Covid-19 proved to be a major disruptor along with other challenges.

Excluding the big-ticket deals in the telecom sector, the first half of 2020 witnessed a slowdown with investors putting their plans on hold and shifting focus towards cash conservation.

Within the PE community, several funds adopted a more cautious approach during the initial months of the year – either to focus on their existing portfolios or with the expectation of revised valuations. Simultaneously, a number of organisations were looking to hive-off non-core assets or distressed segments in an effort to enhance or retain profitability, creating a number of M&A opportunities.

Expectations exceeded on the PE front as investments worth $38.2 billion were recorded in 2020, amounting to nearly the same level of activity in 2019. Reliance Group was once again a large contributor to PE deal values and helped in retaining momentum with PE investments in 2019. Following Facebook, a consortium of funds, including TPG, KKR, General Atlantic, Silver Lake and other PE players and sovereign wealth funds (SWFs) invested $ 9.8 billion in Jio Platforms. These investments accounted for 66 per cent of the growth-stage PE investments in 2020, driving growth investments to an all-time high of $15 billion. Similarly, Reliance Retail Ventures saw investments worth over $ 5.1 billion, resulting in a spike in late-stage PE investments and making 2020 a record year for this type of investment as well.

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On the other hand, the number of buyouts witnessed a sharp decline compared to 2019. This could be due to the risk-averse approach adopted by several funds earlier this year, as well as the need for smaller rounds of cash infusion in cash-strapped businesses. Steered by the need for value creation, preservation and enhancement, control will be a key element for most investors in future.

Despite anticipated challenges for venture capital (VC) funds, early-stage investments maintained levels with previous years. Global investors reiterated confidence in India’s start-up space as well as entrepreneurial capabilities, and were quick to address any gaps created by international conflicts.

PE Investments
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Telecom replaced technology in the top position by attracting investments worth $11.2 billion. The retail sector was another new entrant, attracting investments worth $6.5 billion. Both sectors recorded increased levels of investment mainly on account of large-scale investments in Reliance Group entities. Technology recorded investments totalling a little under $6 billion. Online service aggregators accounted for the majority of the investments in the tech space.
 

On the outlook the report stated that Covid-19 highlighted the importance of building sustainable and resilient organisations backed by good governance, digital capabilities and robust business models, and we could expect these aspects to drive collaborations and partnerships in the future. Consolidation was a major driver for deal activity this year and will form an integral part of M&A in 2021, possibly driving the emergence of new and larger Indian corporations in years to come. While PE witnessed a subdued first half in 2020, activity has picked up and PE funds are anticipating a bumper year in 2021.