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Last Modified: Sat, Dec 24 2016. 07 41 PM IST
Dealmaking in 2016
Dealmaking in 2016 has largely been about big-ticket announcements. One can look at the following key trends that shaped
the industry
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Shrija Agrawal
Photo: Bloomberg
Dealmaking in 2016 has largely been about big-ticket announcements. One can look at the following key trends that shaped
the industry.
M&A hits record high: Indian merger and acquisition (M&A) activity rose to $69.75 billion across 1,195 announced transactions
in 2016, a record level fuelled by a wave of consolidation and rising confidence in the country’s economic growth prospects. In
fact, M&A activity in 2016 beat the previous record of $66.96 billion seen in the benign years of 2007 when deal making was at
its peak.
Mounting interest in private debt: Improved market sentiment and the passing of the new bankruptcy code encouraged
foreign and domestic fund managers to bet big in the space. About 12 private debt funds are on the road to raise as much as $5
billion in investor commitments in 2016 alone, the highest ever in any year, according to data provided by London-based
market researcher Preqin.
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India-Canada corridor: First came the Japanese, then the Chinese and now an India-Canada corridor is building up. The top
Canadian funds have now made investments worth more than $5 billion in India. Large Canadian pension funds—CDPQ
(Caisse de dépôt et placement du Québec) and CPPIB (Canada Pension Plan Investment Board) have on the ground presence in
India now and have made significant commitments. “Patience Capital” and the ability to stay committed to up ×
to even 10-12
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years makes them really institutional and brings long-term locked-in capital to the country. Also, both Brookfield Asset
Management and Fairfax Financial Holdings Ltd do not seem to get enough of India opportunity and are literally in
conversations for majority of large transactions.
ALSO READ: M&A activity at a record high of $69.75 billion
Dry powder hit six-year high: Dry powder—the amount of cash with private equity (PE)/venture capital (VC) funds—stands
close to a six-year high of $7.1 billion, data from private deal tracker Preqin showed, suggesting an improved fund-raising
environment. The high amount of dry powder contrasts with a sharp decline in deal volume in the Indian market. 2016 saw
some bit of rationality as funds sitting on a large amount of cash is a sign of increased discipline among fund managers. 2017
should turn out to be an year of deployment.
Stock deals make a comeback: Year 2016 also witnessed a comeback of stock deals. Some of the major stock deals in the year
included merger of Ibibo-MakeMyTrip, HDFC Life Insurance Co. Ltd-Max Life Insurance Co. Ltd. HDFC Life and Max in August
signed a three-way merger, which would create India’s largest private-sector insurer with total assets of more than Rs1.1
trillion and lead to the eventual listing of HDFC Life on stock exchanges.
Nasdaq-listed MakeMyTrip Ltd agreed to buy Ibibo Group, which is co-owned by South African technology group Naspers Ltd
and Chinese investment firm Tencent, in a stock deal.
Besides, online classifieds company Quikr India Pvt. Ltd acquired home rental start-up Grabhouse (Cryptopy Technologies Pvt.
Ltd) in an all-stock deal. According to experts, in a cash deal, the roles of the two parties are clear-cut, but in a stock deal, it’s
less clear who is the buyer and who is the seller.
Buyouts on an upswing: Indian promoters are no longer wary of selling their businesses or ceding control. Some are drawing
inspiration from the likes of Ajay Piramal, Malvinder Singh who sold their businesses and rose further in limelight. “There is a
belief that you can still become a star after selling your business. This mindset change is a huge positive,” said a buyout
investor. Buyouts showed strong momentum in the first six months of 2016, with the total number of deals and deal value at 14
and $2.44 billion, respectively, data from private equity (PE) and venture capital database Venture Intelligence show. Buyout
deal value more than doubled from $1.14 billion in the same period last year.
The top buyout deals of the first half of 2016 included Blackstone Group LP’s $1.1 billion acquisition of a majority stake in listed
IT firm Mphasis Ltd, Kedaara Capital and Swiss private equity (PE) firm Partners Group’s purchase of mortgage lender AU
Financiers for around $140 million and Abraaj Group’s $221 million deal to buy Care Hospitals.
ALSO READ: Is ‘cashless’ the new VC gold rush?
New kids on the block: About two dozen private equity industry executives are on the road to raise up to $2 billion for their
new funds. The list includes former Carlyle Group managing director Mahesh Parasuraman and former India Value Fund
Advisor partner Sunil Vasudevan’s Amicus Capital; former KKR India director Heramb Hajarnavis’s Sea Link Capital Partners;
and Siddharth Parekh’s Paragon Partners. Baring Private Equity Asia managing director Lakshmiah Balachandra Naidu is also
looking to float a new fund. Now the question is, will this new set of fund managers bring in a new era of Indian private equity
and build out strong institution-like entrepreneurial shops?
Noise around REITs and InVITs got stronger: The Securities and Exchange Board of India (Sebi) proposed easier norms for
both REITs and InvITs in an effort to make it easier for cash-starved developers to raise capital from the public. Several firms
such as IRB Infrastructure Developers Ltd, IL&FS Transportation Networks India Ltd, MEP Infrastructure Developers Ltd and
Sterlite Technologies Ltd have expressed their intention to consider InvITs as a way to unlock capital.
The IPO rush: 2016 has been a year of initial public offerings as Indian companies have raised $3.7 billion from IPOs so far,
excluding the Laurus Labs Ltd IPO, making 2016 the best year for initial share sales in six years, according to data compiled by
Thomson Reuters. Some of the major IPOs included those of ICICI Prudential, Advanced Enzyme Technologies Ltd, Quess
Corp. Ltd and RBL Bank Ltd, Laurus Labs.
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Shrija Agrawal is Mint’s deals editor. Due Diligence will run every week and cover issues in India’s venture capital, private
equity and deals space.
Shrija Agrawal
TOPICS: DEALMAKING
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MERGERS AND ACQUISITIONS
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PE AND VC INVESTMENTS
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PRIVATE DEBT
BUYOUTS
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