India's M&A thrives: Sustains growth amid global economic slowdown

Mid-market acquirers shine, capturing almost 50% of deals in 2023, says Bain & Company's global M&A report

India’s strategic merger and acquisition (M&A) deal activity in 2023 maintained its long-term momentum, with deal volumes surpassing levels seen over the past 10 years, apart from the exceptional record year of 2022, reveals Bain & Company’s sixth annual global M&A report published on Tuesday.

“The sustained momentum is driven by the availability of attractive opportunities and assets, and heightened activity and disruption in sectors with structural tailwinds and favourable policies,” said Karan Singh, chairman, Bain & Company India, and author of the report.

“Renewable energy, infrastructure, logistics, and manufacturing accounted for one in every three deals over the past 18 months.”

Bain & Company also said that India’s strategic M&A deal activity in 2023 maintained its long-term momentum, with over 90 deals valuing $32 billion (deals considered are over $75 million). However, in 2022, India saw 109 acquisitions totalling $118 billion due to an uptick following the pandemic. Year 2023 saw a higher percentage of smaller deals (less than $200 million) and fewer mega deals (valued over $5 billion) that took place in 2022.

“While deals slowed down following a boom year in 2022, activity in 2023 remained robust, with volume estimated to be above levels seen over the past 10 years, excluding 2022, which was an exceptional year,” said Bain & Company.

The democratisation of M&A in India is continuing, with mid-market acquirers (up to $1 billion in revenue) accounting for nearly 50 per cent of the activity. This trend is primarily fuelled by the healthy appetite seen in these companies for scale deals to build leadership positions.

Torrent Pharmaceuticals is an example of how M&A can help mid-market players break out to become industry leaders.

Torrent has made a series of acquisitions, including Elder, Unichem’s domestic business, and most recently the $245 million deal for Curatio. The acquired brands have helped Torrent bolster its branded generics portfolio as well as build a high-value consumer health portfolio.
 

India’s conglomerates also continue to actively reshape their portfolios by pursuing new growth engine opportunities to create new lines of growth.

Reliance Retail continued its long-running acquisition drive in 2023, building an omnichannel retail scale with its purchases of Raskik, V Retail, and Ed-a-Mamma.

Aditya Birla Group’s acquisitive house of brands business, TMRW, made its ninth acquisition in 2023 with menswear brand The Indian Garage Co., adding to its eight digital-first lifestyle brands already acquired. Industry leaders are also branching out into new growth areas. For example, PI Industries, a leading agrisciences company, forayed into pharmaceutical with two global acquisitions.

More than 80 per cent of respondents to Bain & Company’s annual M&A Practitioners’ Outlook Survey from India expect to close a similar number of deals or more in 2024 as they did in 2023. They also expect the availability of attractive assets to increase. M&A practitioners in India are not stymied by many of the headwinds that stall deals in other markets.

“Market sentiment is bullish, with most dealmakers expecting a continuation or an improvement during 2024 across sectors,” said Vikram Chandrashekhar, partner, Bain & Company, and co-author of the report.

For example, Chandrashekhar said that in health care, deal volumes have grown consistently over the past five years, and the momentum is expected to continue in 2024 with quality assets coming to market and a positive sector outlook.

“As more assets become available and competition heats up in India, disciplined diligence can provide the edge to win the deal and set up for value creation,” said Chandrashekhar.

Global M&A 2023 dealmaking

The total Global M&A market dropped 15 per cent, to $3.2 trillion, the lowest level in a decade, as dealmakers grappling with high-interest rates, regulatory scrutiny, and mixed macroeconomic signals had to be more selective about which deals to pursue in 2023.

But the biggest obstacle was the gap between valuations. At 10.1 times, overall strategic deal multiples were the lowest in 15 years. Looking ahead, many of the assets that didn’t come to market last year will fuel active dealmaking in 2024.

“The drop in deal multiples led to a wait-and-see atmosphere in 2023, with many sellers hesitant to come to the table at a market bottom,” said Les Baird, partner and head of Bain & Company’s global M&A and divestitures practice.

“This year, buyers have their eyes on a growing backlog of deals. A need for liquidity will motivate some sellers, while others will divest assets while reshaping their portfolios. As interest rates stabilise, we expect the logjam in M&A markets will break. When it does, competition for assets will be significant. Winning buyers will use diligence to uncover a differentiated view on revenue and cost synergies and win the deal,” Baird added.

Finally, the year 2023 showed a widening of the gap between how frequent acquirers and their inactive peers behave in M&A downcycles. Most frequent acquirers never stop doing deals even as the market overall contracts. This is significant as Bain’s long-term research shows frequent acquirers outperform in total shareholder return and that this margin continues to grow.

India insights from global M&A report

·         More than 80% of respondents to Bain & Company’s annual M&A Practitioners’ Outlook Survey from India expect to close a similar number of deals or more in 2024

·         India’s strategic M&A deal activity in 2023 maintained its long-term momentum, with over 90 deals valuing $32 billion (deals considered are over $75 million)

·         2023 saw a higher percentage of smaller deals (less than $200 million) and fewer mega deals (valued over $5 billion) that took place in 2022