‘Indian deal street abuzz with activity in 2020 despite disruptions’

New Delhi, Dec 23 (SocialNews.XYZ) The deal street in India remained busy throughout 2020 despite the disruptions caused by Covid-19 pandemic and concerns around macroeconomics, corporate governance, changing regulatory norms, geopolitics and global tensions.

In 2020, deal values amounted to little over $ 80 billion across around 1,268 transactions, which is a seven per cent increase in terms of value as compared to 2019.

But, most of this activity was witnessed in the telecom sector and particularly in Jio Platforms that accounted for 25 per cent of the aggregate deal value. Barring this, the first half of 2020 witnessed a slowdown with investors putting their plans on hold and shifting focus towards cash conservation.

According to a report by PwC India, 2020 recorded 17 deals in the billion-dollar bracket, nearly double the number of such deals (nine) recorded in 2019. One of the noticeable trends in the deal market is declining volumes of deals but with increasing deal values. About 2,035 deals worth $ 63 billion were recorded in 2016, compared to 1,268 deals worth $ 80.4 billion in 2020.

The PwC India report said this indicates that the average ticket size has doubled over the last five years from around $ 30 million in 2016 to $ 60 million in 2020.

"With a number of companies struggling to stay afloat, large strategic investments or takeovers are expected in 2021 as well. Disruptions caused by the pandemic present a sizeable opportunity for PE funds that are sitting on significant volumes of dry powder and are willing to take a long-term view on their investments. We could expect to see big-ticket deals in the late-stage segment when companies are possibly more established with better liquidity," the report titled 'Deals in India: Annual review and outlook for 2021' said.

According to the report, over the last few years, technology, energy, financial services, infrastructure and real estate have been among the top sectors attracting private equity (PE) investment. However, there has been a slight shift in investor priorities in 2020. Telecom replaced technology in the top position by attracting investments worth $ 11.2 billion. The retail sector was another new entrant, attracting investments worth $ 6.5 billion. But both sectors recorded increased levels of investment mainly on account of large-scale investments in Reliance Group entities.

In fact, Facebook's around $ 5.7 billion in Reliance Group entity Jio Platforms for nearly a 10 per cent stake is possibly in one of the largest deals to be completed virtually during the lockdown. This was followed by a $ 4.5 billion investment from Google for a 7.7 per cent stake in Jio Platforms.

PwC India report said that strategic deals (mergers and acquisitions [M&A]) accounted for over 50 per cent of the total deal value this year, while private equity (PE) activity kept pace with last year, recording investments worth $ 38.2 billion.

A number of mergers were also recorded in the banking sector, which was already witnessing a wave of consolidation in previous years. Aimed at improving capital efficiency and financial inclusiveness, the merger of public-sector banks accounted for around a quarter of the consolidation activity in 2020.

The report said with a number of companies struggling to stay afloat, large strategic investments or takeovers are expected in 2021 as well. "Disruptions caused by the pandemic present a sizeable opportunity for PE funds that are sitting on significant volumes of dry powder and are willing to take a long-term view on their investments. We could expect to see big-ticket deals in the late- stage segment when companies are possibly more established with better liquidity," PwC India said in its report.

In 2020, expectations exceeded on the PE front as investments worth $ 38.2 billion were recorded, amounting to nearly the same level of activity in 2019. Reliance Group was once again a large contributor to PE deal values and helped in retaining momentum making 2020 a record year for this type of investment as well.

The year 2020 also saw PE exits reaching an all-time low in the last five years and continue to remain a challenge amidst market volatility. 2020 recorded 136 exits valued at $ 4.2 billion, a 56 per cent decline in terms of value as compared to last year. "Valuation concerns along with an expectation mismatch between buyers and sellers have resulted in a number of exit plans being shelved," PwC India report said.

The report has presented an optimistic scenario on the Indian deal street even in 2021. A survey carried out early this year by PwC India to assess the CXO community's views on the current crisis and the way forward brought out extremely positive results. The results echoed confidence in India's recovery, with 82 per cent of the respondents expecting to return to pre-Covid revenue run rates by June 2021.

Equipped with a demographic advantage, strategic location for exports, expanding consumer market and focus on digitalisation, India is well positioned to become an economic powerhouse of the future. With corporate India focused on recapturing demand and building organisational resilience, supportive government reforms and policies will create a more conducive business environment for the investor community, thereby contributing significantly towards India becoming #FitForFuture, the report said.

Source: IANS