Sale season at India Inc

While big defaulters and bargain hunters at bankruptcy courts may be hogging the limelight, outside it a big M&A season is already upon us

Pick up any pink paper and you will be full to the gills about the goings on at the 11 National Company Law Tribunals or NCLTs across the country. Nine hundred-odd firms, including the biggest defaulters in the “dirty dozen” that includes names like Essar Steel, Binani Cement and Jaypee Infratech, and their eager suitors from global players like ArcelorMittal to local behemoths like Tata Steel and JSW Group, are hogging all the limelight as they go through the painful twists and turns at the bankruptcy courts.

Just look outside the bankruptcy courts, and a big buying and selling season may just be commencing here too with a vengeance. The country’s biggest e-commerce firm is on the block, and so is the biggest airline. The energy sector is rife with promise of big bang foreign investment and two deals in the renewables sector are fighting for the top slot in the pecking order. Local firms are looking at offloading assets considered noncore, and the ever active private equity players are back to sewing up mega entry and exits across sectors.

And unlike the activity at the NCLTs that is primarily driven by default by promoters, the motives are very different outside it. So if we keep the Fortis deal out, as promoters in distress explain the fire sale here too, the trends underlying mergers and acquisitions (M&As) can be clubbed into five broad buckets:

• Global play: Many global rivalries are now playing out actively on Indian shores. Global retail biggie Walmart’s interest in Indian e-commerce leader Flipkart—reportedly at a valuation of $18 billion or Rs 1.2 trillion—is driven by its strategy to take the fight with US rival Amazon to big markets worldwide. Similarly, Procter & Gamble buying Merck Ltd for Rs 12.9 billion including brands like Seven Seas, Neurobion and Nasivion is the fallout of the US consumer major’s $4.2 billion global acquisition of Merck’s consumer health business. Horlicks, a household name in India, being hawked by its parent GlaxoSmithKline in India, is part of the sale of its global nutrition business to fund the $13-billion buyout of Novartis’ stake in their global consumer health care joint venture.

• Core, noncore: Bengaluru-based IT major Infosys is unwinding ex-CEO Vishal Sikka-led investments in firms like Panaya and Skava, bought for $200 million and $120 million respectively, as it sees the business as not core to its future. Cross-town rival Wipro too is changing track by selling its hosted data-centre business—a relic from its decade-old acquisition in Infocrossing—to the US-based firm Ensono for $405 million.

Schneider-Temasek is playing for L&T Electrical & Automation, the infrastructure major’s noncore switchgear and switchboard making division in a Rs 130-150 billion deal. And global IT majors IBM and Convergys are looking to strengthen their core operations in India and are reportedly looking at buying Blackstone-led outsourcing firm Intelenet for $1.2 billion.

• Government-led activity: Air India is on the block as the government wants to offload 76 per cent through open bidding in the loss-making, debt-ridden national carrier. Though many local suitors seem to have backed out, word is that many big global airlines, sovereign wealth funds and private capital may be interested in the airline because of its juicy domestic and international flying rights and airport slots.

And then there is world’s biggest oil company Saudi Aramco coming in as equal partner in the proposed Rs 3-trillion oil refinery in Maharashtra with public sector oil firms Indian Oil, HPCL and BPCL. And Australian infrastructure management firm Macquarie walked in as the government let out nine national highways in a novel over Rs 90 billion toll-operate-transfer model.

• Consolidation: India’s nascent renewable energy space is rife with consolidation. Whilst Hyderabad-based Greenko is looking at buying Singapore-based AT Capital and NRI Arvind Tiku-led Orange Renewable at a valuation of $1 billion, another multi-billion dollar deal in the making is ReNew Power Ventures looking to buy Ostro Energy at a Rs 108 billion valuation. Any of the two deal materalising will change the pecking order in the industry currently led by Tata Power Renewable Energy.

US insurer Prudential and PremjiInvest are in play for Star Health & Allied Insurance for Rs 60 billion. And there is talk of a major consolidation in the private banking space in India.

• PE-led action: Private equity players invested $25 billion, a record last year, and the exits were at an all-time high of $13 billion, according to a report by consultant EY. Domestic deals went up from 528 to 682 in 2017, and looks like it will strengthen this year. Kedaara Capital-Partners Group is looking at picking retailer Vishal Mega Mart from its current owner, TPG-Shriram Group, for Rs 50-53 billion, and Apax Partners, the country’s largest medical consumables and surgical suture firm Healthium Medtech, for Rs 19.50 billion.