M&As in India collapse 76% in H1 2023 on global macros, Hindenburg

The value of mergers and acquisitions in India fell sharply by 76 per cent in the first half of 2023 to $3.2 billion when compared to the same period of last year. A total of 1,201 deals were announced between January and June this year as compared to 1,914 transactions, worth $13.42 billion, announced in the first half of 2022, according to the data sourced from Bloomberg. The decline is despite the stock markets touching a new high on Wednesday and chief executive officers expecting the economic momentum to continue. Apart from rising rates, an adverse report by US-based short-seller Hindenburg Research on Adani Group and the resultant erosion in the group’s market capitalisation added to the gloom because the conglomerate stayed away from M&As to save cash.
 
In May last year, Adani Group was the major player in M&As by buying Ambuja Cement in a $10.5 billion transaction.
 
Among the major transactions announced so far is the Canadian Pension Plan Investment Board’s acquisition of a stake in Renew Power for $4 billion from Goldman Sachs, taking its economic interest to 51.6 per cent. This transaction was followed by Temasek raising its stake in Manipal Hospital for $2 billion to 59 per cent.
 
On June 20, a BPEA-EQT consortium agreed to acquire a majority stake in HDFC Credila, valuing the company at $1.3 billion (Rs 10,350 crore).
 
“M&As have largely been affected by macroeconomic challenges amid Russia-Ukraine war, geopolitical tensions, inflation, and recession fears. Deal-makers seem to be adopting a cautious approach,” says Aurojyoti Bose, lead analyst at GlobalData.
 
Investment bankers said global reasons too affected M&A sentiment.
 
“Global M&As, including those in India, shrank as high interest rates, high inflationary pressure, and fears of recession soured deal-making appetite. While domestic parameters are good, global uncertainties, including geopolitical issues, have had an impact on market sentiment,’ said Mahavir Lunawat, managing director of Pantomath Capital Advisors.
 
“Besides, corporate governance issues unearthed in a series of marquee unicorns and the valuation drain in most of the new-age businesses contributed to subdued confidence,” he added. The outlook for the rest of the calendar year looks mixed with talks on several key transactions currently in progress.
 
JSW Group, Hinduja, Mahindra are in talks to acquire a stake in MG Motor India. Several private equity firms are bidding for the road portfolio currently on sale by Macquarie and Reliance Infrastructure.
 
The heads of private equity firms say they have “dry powder” worth billions of dollars to make acquisitions in infrastructure, consumer retail, and health care. Sourav Mallik, managing director and deputy chief executive officer, Kotak Investment Banking, said: “The M&A environment has been remained robust over the past 12 months despite the volatile global environment and the comparison is not completely reflective, given the large transactions announced in H1CY22, such as the HDFC-HDFC Bank merger and Adani’s Holcim acquisition.”
 
The M&A business remains lumpy by nature and the outlook for the next 12 months continues to be strong, given the attractiveness of India as an investment theme and the substantial availability of capital and is expected to be diversified across sectors. Financial sponsors and domestic companies are expected to continue to dominate M&As in the next 12 months, though we are seeing a re-emergence of activity from international companies.”