M&A deals move into slow lane as investors worry about Covid fallout

Bankers say sale of Lavasa Corp, currently under bankruptcy, and RCap and Reliance Naval deals will be delayed, as bidders are re-thinking plans

Several mergers and acquisitions or M&A transactions have moved into the slow lane as investors are worried about the economic fallout of the second wave of the pandemic.
 
Bankers said the sale of Lavasa Corporation (currently under bankruptcy), assets of Reliance Capital, and Reliance Naval will be delayed as potential investors are now re-thinking their plans.
 
“We have sought an extension of the last date to put in our bid for Lavasa. We are not very sure whether the earnings estimates made by us just a few weeks ago are now valid,” said a bidder.
 

Lavasa, a hill city turned ghost town, had attracted attention of few real estate players.

 
However, with the economic outlook deteriorating, bidders said they may even have to put in a lower bid.
 
“It’s not feasible as the second wave will make the economy slow down further,” the bidder said. Only the transactions announced earlier are now closing.
 
On example is Tata’s acquisition of online grocery retailer BigBasket.
 
Investment bankers said the first quarter of the new financial year could be a washout unless there is some big-ticket transaction like Reliance Jio stake sale, which took place last financial year.
 
Reliance Industries (RIL) is planning to sell a 20 per cent stake in its oil-to-chemicals business to Saudi Aramco. This would again be a blockbuster deal for the new financial year. Saudi Aramco may sell a minority stake to RIL and offer cash to buy the stake worth $15 billion.

 
Among other transactions, which are now facing uncertainty, is the sale of assets by the lenders of Reliance Capital. The lenders had offered to sell all assets of Reliance Capital either as separate buckets or in toto.
 
Several companies, including global biggies, had submitted their expressions of interest but four companies had submitted their final bids.
 
“Investors are waiting to see how this wave pans out and what is the impact on consumer spending and investments. Till then, every investor will play safe unless they get a fire sale deal,” said another banker.
 
The second wave of the pandemic has already led to lockdowns in several states that would impact corporate earnings and valuations.

 
In a report, Nomura has warned that pain in the Indian economy will grow on account of lockdowns in Maharashtra as well as Karnataka. 
 
“We also see signs of the economic pain spreading to the wider economy (power demand, GST e-way bills and railway freight). With more states extending restrictions, sequential momentum is likely to remain weak over the next month, hurting GDP growth in Q2 of calendar year 2020. The sharp slowdown in
 
ultra-high frequency indicators since April and extended restrictions do suggest downside risk to our existing GDP growth projection of 11.5 per cent year-on-year (YoY)  in 2021, in comparison to -6.9 per cent in 2020,” wrote Sonal Varma, managing director (MD) and chief India economist of Nomura, in a co-authored note with Aurodeep Nandi.

 
Given that these are just initial economic impact reports, investors are waiting for more data to take a decision, according to a banker.

TAKING A U-Turn

• Deal pipeline to face further delay
• Investors worried about fallout of the second wave, ensuing lockdowns
• Asset valuations to fall
• Sale of Lavasa Corp, Rel Naval, Rel Capital among those impacted
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