More distressed M&A deals in pipeline: Report

Post the Insolvency and Bankruptcy Code (IBC), there has been a significant increase in the number of quality assets available at attractive valuations, providing further impetus to an already hot market for M&As in India, says a report.

According to a report by Kroll and Mergermarket, since 2017, distressed merger and acquisition (M&A) values in India have hit USD 14.3 billion, 12 per cent of the total M&A value, led by deals involving Bhushan Steel (USD 7.4 billion), Reliance Communications (USD 3.7 billion) and Fortis Healthcare (USD 1.2 billion).

Two-thirds of distressed transactions were classified as "direct", where the asset itself was distressed, while the remaining one-third of "indirect" transactions resulted in a sale because the parent organisation was in distress.

Close to USD 10 billion of those deals have been closed in 2018 so far.

For the purpose of this analysis, distressed M&A was defined as any transaction involving sale of a company directly in distress or where the transaction was carried out where the parent group/company was in distress.

Expectations are strong that distressed M&A will be an ongoing theme for acquisitions in the country and will increase as more companies are admitted under the IBC and make their way through the National Company Law Tribunal (NCLT) process.

Since May 2016, approximately 900 companies have been referred to the NCLT and the list of companies going through the IBC restructuring and insolvency process starting with the so-called "dirty dozen" continues to grow, the report noted.

"Initially, there was concern that the Indian Insolvency and Bankruptcy Code (IBC) would lack firepower. However, while there have been some hits and misses, on the whole, the IBC has been very much a positive for the Indian market and is opening the door to a new investment class: distressed assets," said Tarun Bhatia, Managing Director and Head of South Asia, Kroll.

Overall, Indian M&A has had an impressive year, with deal values touching a five-year high at USD 72.2 billion and going forward, the deal momentum looks bullish as opportunities for investors and acquirers have registered significant increase as quality assets are available at attractive valuations, the report said.