Sectors such as renewables and life sciences/health, which were overwhelmingly popular in post-pandemic 2022 continued to gain traction from private equity investors. The largest funding deal by GIC and Abu Dhabi Investment Authority in clean energy-focused Greenko Group, and the further acquisition of a stake by the Canada Pension Plan Investment Board in renewables company ReNew Energy Global, demonstrate investors’ faith in India’s ambitious target of becoming a world leader in renewable energy.

The Indian healthcare and life sciences sector experienced an 85% surge in overall deal value, amounting to over USD4.4 billion in the first half of 2023. Key deals in the sector are Temasek’s acquisition of a controlling stake in Manipal Health and Blackstone’s investment in CARE Hospitals.

It was not only the prevalent sector, but also the non-conventional sub-sectors in consumer and retail, that witnessed momentum, with significant deals happening in such sectors. The most eye-catching of these was the multimillion-dollar founder exit from Caratlane, an e-commerce platform involved in the sale of jewellery, and the majority acquisition of the beauty and wellness brand VLCC by Carlyle.

Legislative impetus

India Inc remains hopeful that the continued positive efforts by the Indian government will further accentuate the optimism in the Indian market.

Recent amendments to the Companies Act governing “fast-track mergers” streamline the merger process by establishing clear and enforceable timelines for the regional directors. To further the ability to capitalise market opportunities, the recently published draft combination regulations seek a derogation from the standstill obligations for open market purchases. Aligned with global standards, this step would make it easier to implement open offers and other on-market purchases. In a similar stride, a draft consultation paper has also been issued to amend the voluntary liquidation process so as to provide clarity to stakeholders and facilitate a more efficient and transparent process.

Furthermore, the sector-specific steps adopted by the government include the notification of green credit rules and ambitious energy transition (to solar and hydrogen) policies to open up business opportunities and encourage conglomerates as well as traditional energy companies to invest in renewables. The establishment of the Infrastructure Finance Secretariat is likely to enhance opportunities for private investment in the overall infrastructure of the country. The Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors, Modified Electronics Manufacturing Cluster (the “EMC 2.0”) Scheme and the flagship Production-Linked Incentive (PLI) scheme have been notified for large-scale electronics manufacturing, and the government has given the greenlight to industry players like Micron and Foxconn to establish units in India. This has the potential to attract large investments in the semiconductor industry, mobile phone manufacturing and specified electronic components industry, with the objective of presenting India as a prime alternative in a sector which has historically been dominated by China.

Key themes driving the M&A trends

Several key themes have emerged as drivers of the current M&A space. With global companies seeking to de-risk their supply chains, and curb their dependency on China, certain sectors such as chemicals and active pharmaceutical ingredients are offering immense opportunities, with private equity players acquiring well-priced assets and scaling them up to create a large platform.

Established domestic companies have continued to engage in scope deals to strengthen their portfolio. Cheering its private equity investors with a valuation bonanza in less than three years and gearing up for what is expected to be a significant IPO, Reliance Retail Ventures, one of the largest retail players in India, has also acquired Metro Cash & Carry India, to grow its last-mile reach by integrating the B2B base commanded by Metro. With a similar outlook to integrate an industry-proven platform, Tata Telecommunications has acquired Kalyera Inc, a global omnichannel integrated communication services provider with a set of proprietary platforms.

Lastly, ESG has gained increased traction and there has been a shift from a tick-the-box approach to ESG being viewed as a critical value driver by investors. Clean energy and electrical mobility are the key sectors for ESG-driven investments in India. The largest recent funding deal in the mobility sector has been the investment by Multiples PE and the State Bank of India in Murugappa Group’s electric vehicle (EV) unit Tl Clean Mobility and, as per multiple press reports, many such deals are currently in the offing in the EV and allied sector space.

Glimmer of hope

Smooth seas never make a skilled sailor and the year ahead in this cyclical M&A market would appear to belong to those players that did not hesitate during the downturn, but which rather took advantage of opportunities to reassess, realign and reshape their portfolio and investment priorities. It will also be interesting to see if the upcoming general elections in India bring improved business optimism, or if the escalating tensions in the Middle East increase market volatility, further adding to the sluggish pace of M&A.

Hopefully, the positives will yet trump the negatives, given the overall macro gains. Stable interest rates, solid corporate balance sheets and the ample dry powder at the disposal of private equity players present an encouraging prospect of market stability for solid investee company targets, if not the boom that the market has seen in previous years.

This article was originally published in Chamber and Partners and Co-written by: Mithun V. Thanks, Partner; Puja Sondhi, Partner; Shraddha Suryavanshi, Principal Associate. Click here for original article

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