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Mergers and Acquisitions: Trends and Outlook in this Sector
Shivani Jain
| Updated: Apr 28, 2020 | Category: SEBI Advisory

Mergers and Acquisitions: Trends and Outlook in this Sector

Coming from a strong year of 2018, the global market of Merger and Acquisition slowed in 2019. While the worldwidemarket announced that the volume of transactionswas in line with the year 2018 (driven by the increased volumes of transactions in North America), but the deal count for the deals greater than $250 million was down 9 percent globally year over year. Despite declines announced in the Merger and Acquisition activity, strategic dialogue continued strong as the companies continued to use Merger and Acquisition to strengthen their businesses.

Whereas in India, unlike last to last year, i.e., 2018, we had observed a downward trend in the transactions concerning Mergers and Acquisitions during the year 2019 both interms of volume and deal numbers.However, the activities concerning mergers and acquisitions saw a spur due to the sale of distressed assets under the Insolvency and Bankruptcy Code (IBC). Further, it is noteworthy to note that the Insolvency and Bankruptcy Code, although in its embryonic stage, has already gathered a lot of investor attention to be c as an M&A category in itself, solely involving distressed assets.

Recent Reports on Mergers and Acquisition

Furthermore, the above stated is also apparent from the India M&A Report 2019 published by the Bain and Company in alliance with the Confederation of Indian Industry (CII).According to the said report, 70 percent of the growth and development in the M&A activity in the year 2018 was due to the distressed deals, enabled by way of the corporate insolvency resolution process under Insolvency and Bankruptcy Code.

Moreover, as per the M&A Trends Survey 2020 published by the Deloitte Company, precise and robust signals showthat M&A deal activity will persist. The said survey was conducted on 1000 executives, out of which only 4 percent of the respondents or executives predicting a decline in the number of deals in the next 12 months. Also, just2 percent of the survey respondents anticipate a drop-off in the deal size in the year 2020.

Recent Deals of Mergers and Acquisitions

In the year 2019, some notable foreign investments across several industry sectors making its way into the country albeit the downward trend, the facts of a few are as follows –

  1. Acquisition by the Ebix Inc of a majority stake of 71 percent in Yatra for $337.8 Mn.
  2. Lately, Edtech Companies are also grabbing investor attention by way of deals like Byjus’s-Qatar Investment Authority (QIA) investmentsand Blackstone Partners-Aakash Educational Services Limited.
  3. Acquisition of the Aadhar Housing Finance Limited by the Blackstone Partners. Some of the other deals in the sector consist of investment of $250 Mn by the CDPQ in the non-banking armrest of Edelweiss Group named ECL Finance Limited.
  4. 4 percent stake pick by total S.A. for $864 Mn in the Adani Gas Limited,is the largest FDI (Foreign Direct Investment) in the highly regulated gas distribution sector.
  5. The Logistics sector is the armrest of e-commerce business, saw foreign direct investments in the form of Shadowfax-Flipkart deals,and Delhivery-Canada Pension Plan Investment Board (CPPIB).

Mergers and Acquisition Deals in Start-up Sector

We had also observed quite a few Mergers and Acquisitions deals in the start-upsector namely –

  1. acquisition of Fastfox by the Elara Technologies,
  2. CRIDS by Sachin Bansal,
  3. Wibmo by PayU,
  4. acquisition of Nightstay by Paytm,
  5. OYO acquired a Gurugram-based coworking start-up named Innov8 for INR 220 Cr, i.e., $31.84 Mn, in an all-cash deal.
  6. ShopClues, an Indian start-up,was acquired in a stock deal by a Singapore-based company named Qoo10 Pte Ltd.
  7. ClearTax, the fintech start-up,has acquired a Mumbai-based audio streaming platform named Dose FM for an undisclosed amount.
  8. Printo, a Bengaluru-based printing retail start-up, has acquired a custom online printing marketplace named Inkmonk for an undisclosed amount.
  9. Lastly, Medlife, a Bengaluru-based e-pharmacy start-up,has acquired a medicine delivery start-up named Myra Medicines for an undisclosed amount.

Key Events and Trends of 2019 that Dominated Mergers and Acquisitions

Firstly, the global economic slowdown and secondly, the growing tensions coxed by the US-China trade war triggered a likely controlled approach regarding the M&A activities in the world. Further, this uncertainty around the geopolitical landscape led to a consequence effect negatively impacting the previous year’s investment activities. In addition to the above, the sentiments of the Indian investors were also conscious because of the country’s 17th Lok Sabha elections.

Furthermore, apart from IBC (Insolvency and Bankruptcy Code), the key trends ruling M&As were the dynamism and vigour of the present government to strengthen the economy by way of its business-friendly initiatives. These initiatives were introduced by way of reforms in the regulatory regime is apparent to offer a much-neededmotivation to the Mergers and Acquisitions activities in the country going forward. The following listed are few of the reforms introduced all through the year which may boost the activities concerning M&A –

  1. SEBI’s (Security Exchange Board of India) new framework on the issuance of Shares with Differential Voting Rights. This framework provides an effective tool to receive investments, that, too, without losing control.
  2. The Foreign Exchange Management (Cross Border Merger) Regulations, 2018, happens to be one more first of its kind piece of legislation.
  3. The Code of Wages, 2019, consolidates four existing Labour Laws into one.
  4. The Foreign Investment Regulations, 2019 (classified as the Debt and Non-debt Regulations), replaces the previous TISPRO Regulations, 2017, along with the Acquisition of Immovable Property in India Regulations, 2018.
  5. Tax incentives and exemptions to the registered start-ups.
  6. Various Reforms introduced in the manufacturing sector advocating the campaign of ‘Make in India.’
  7. Lastly, the Quintessential reform regarding the reduction in the effective corporate Income Tax Rates results in placing India onto the map of an attractive investment destination at par with most of the topobserved investment destinations of the world.

Important Legal FacetstoPonder While Exploring M&A Transactions in India along with the Ways to Streamline Its Process

In the era of rising corporate frauds and overnight bankruptcy and insolvency cases, the crucial aspect before negotiating any M&As transaction is an efficient due diligence activity. Thus, more often than not, diligence is known as a “measure of prudence,”which can rock the sails of any transaction to a prudent direction.

However, it is significant to note that diligence is not the sole basis but only a facilitator to undertake any transaction concerning M&A in India. Besides the exercise of diligence, the degree of corporate governance exercised by the entities in their ordinary course of business is another significant tool to measure the synergies of any deal concerning M&A.  Further, today’s age is the age of technology, and its effectual integration would set a forward-looking trail in our continuous endeavor to streamline the process of Mergers and Acquisitions activities.

Further, it is noteworthy to note that the most recent initiative unleashed by the government for expediting M&As is the process of “deemed approval” under the “Green Channel Route” by the Competition Commission of India (CCI) for certain categories of M&As. Lastly, these regular initiatives of the government, has led India to move 14 places up at the 63rd rank in the ‘Ease of Doing Business’rankings by the World Bank.

Expected Outlookfor M&A in 2020 during COVID -19

At the commencement of the year, various projections were made by the M&A experts, that the year 2020 will surpass 2019 in terms of M&A deal activity. However, due to the outbreak of the coronavirus epidemic,things have changed noticeably, with the unpredictability of the magnitude and the uncertainty of its potential impact considerably impacting the deal environment.

Further, not only the Indian market but also the global business environment is presently witnessing an unparalleled challenge. Although the restricted social activities and lockdowns are essential to deal with the current epidemic, but this will result in the enormous disruption in the cash flow issues, supply chains, and funding gaps, drop in consumer spending, and encounters in the unchartered and unimaginable territories for most businesses and communities.

Hence, it is difficult to predict the actual consequences of a global epidemic and long-term lockdowns, that are affecting every aspect of daily life. Further, with such uncertainty and unpredictability, post-crisis the attention of the business owners and managers is likely to be on managing and recovery of the core business. As a result, any inorganic activity concerning Merger and Acquisition may take a backseat. 

However, it is noteworthy to note that the shock of Covid-19 may drivethe global M&A activity, as businesses will pursue to raise more capital and also to find opportunities created by the adversity. This is donein order to make acquisitions of assets or businesses at a more reasonable or distress valuation and also to consolidate with the players in the supply chain as well as the previous competitors, as a mutually advantageous strategy in order to survive, sustain and grow.

Conclusion

Earlier it was expected that the year 2020 would surpass 2019 in terms of M&A deal activity with the expectant efforts of the government along with the favouring acquisition market conditions.However, due to the outbreak of the coronavirus epidemic, investment activities by way of mergers and acquisitions are not favourable in the year 2020.

Shivani Jain

Shivani has completed her B com LLB (Hons) and has the experience of writing various research papers during her college time. Earlier she was working as an Associate in a Delhi based Law Firm, but her interest in writing made her pursue Legal Content Writing as a career. Her core area of interest is in writing about various legal enactments, tax, and finance.

Top Rated CA
 

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