Opinion

Indian M&A: Can 2016 be turnaround year?

Mahesh Singhi Mahesh Singhi - 5th April 2016
The domestic inflation is in control and GDP growth is expected to accelerate. These are necessary ingredients for growth in M&A deal activity. The recent FDI norms and the much awaited GST (Goods and Services Tax) will perhaps be a game changer and will further accelerate the deal activity from an inbound investment, domestic M&A and PE perspective.

Last year, the corporate India's M&A deal tally declined 18% to USD30.4b. This was a surprise as 2015 started with a bang with 236% increase in M&A deals in 1Q2015. However there was considerable slowdown by the later part of 2015 as the deals in e-commerce sector and core manufacturing dried out.

The Modi Government’s intent is to revitalize the Indian economy which will positively affect business environment. Indian companies would be more open and aggressive in acquisitions and consolidation in 2016. At the same time, some companies will continue to divest their assets to raise cash for deleveraging and reducing their financial costs.

There is also strong interest from both foreign investor sand domestic players in buying out stressed assets. Quite a few companies and banks are struggling with stressed assets worth ~INR3tn in the system. Many investors are looking this as an opportunity to hunt for good assets which could yield high returns with the changing business cycles. These assets are mostly in real estate, metal and infrastructure space - power, steel, roads, airports, commercial buildings etc.

Although it is difficult to predict the value of M&A deals for 2016 but the prospects are certainly better than 2015. Undoubtedly, the M&A has now become a core element of corporate strategy. We hope to see regulatory and market changes which create a better atmosphere for M&A transactions. That will be a big driver of corporate growth, value creation and will significantly improve Governance in India.

There will also be support from 'Make in India' initiative and thrust on defense, India has started attracting foreign investment in the key sectors which is further corroborated by the fact that India has been the largest receiver of FDI in 1H2015 with USD31b (latest number available). Since then, we have seen many FDI announcements in defense and insurance sectors as the government lifted / diluted FDI caps. These factors will continue to support corporate actions in 2016.

The only challenge could be ongoing global slowdown and constraints in capital raising. Global M&A deals in 1Q2016 were already down 25% to USD701b. This shows that the global economy is still staggering and may take some time to recover. However we see India in a sweet spot in the emerging markets. Most foreign investors and companies are bullish on fundamentals of Indian economy.


Mahesh Singhi
Managing Director - Partner,
Singhi Advisors Pvt. Ltd.


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