India Inc has logged a record-high deal activity and also surpassed pre-Covid wave in the current 2021 financial year with 2,064 transactions worth $114.9 billion, a jump of 40% in value and 60% in deal volume, as compared to 2020, shows a PwC India’s new report.
The report titled ‘PwC India’s Deals in India: Annual review and outlook for 2022’ revealed that several key contributors, including private equity availability, abundant cash reserves, foreign direct investment and lower interest rates, pushed the activity growth in 2021.
It further showed that PE deal activity contributed a significant portion of the value and volume, accounting value and volume for 57% and 61% respectively.
PE transaction value also recorded an all-time high of $66.1 billion, with 1,258 deals, a 32% rise in volume and a 50% in value from 2020. Besides, mergers and acquisitions (M&A) drove the activity balance, accounting for 43% and 39%, respectively.
“It is clear that despite headwinds from the pandemic and other uncertainties, CEOs in India are significantly optimistic about the prospects for a stronger economy in the coming year. We, therefore, expect the momentum of deal activity to continue in 2022. On the corporate side, we expect the strategic shift to digital, innovative and new disruptive business models to continue to drive M&A decision-making,” said Dinesh Arora, Partner and Leader – Deals, PwC India, said,
The findings also showed that exits by private equity firms also increased significantly, accounting for roughly six times the value of exits in 2020.
Strategic sales accounted for 36% of the exit value in 2021. The exits, according to the report, show that long-term investors are looking for high valuations and are taking advantage of the exit momentum.
M&A activity in 2021 was more than double the volume and 28% higher in value as compared to 2020. M&A megadeals in sectors such as renewables, infrastructure and education reflect the continued interest in consolidation.
Large deals in the renewable energy sector, such as Adani Green Energy's $3.5 billion acquisition of SB Energy India and Reliance New Energy Solar's $771 million acquisition of REC Solar Holdings, fueled M&A activity. With Wipro's $1.5 billion acquisition of Capco and Byju's $600 million and $500 million acquisitions of Great Learning and Epic, IT was the next large segment.
Domestic M&A was boosted in 2021 by economic confidence and sufficient capital, with corporations disposing non-core assets to consolidate massive corporate structures and then using the cash to buy assets, according to the report.
The technology sector continued to dominate Indian private equity investment. In 2021, there were 823 agreements for $40 billion, which is nearly five times the amount seen in 2020. The rise was mostly due to larger deal sizes, with five multibillion-dollar deals totaling $12.1 billion and 78 mid-sized deals totaling $19.4 billion, compared to only 19 mid-sized deals in 2020.
The conditions that contributed to 2021's record M&A market will continue to influence deal-making in 2022.
PE deals have had a particularly strong run recently, and they are on track to increase their proportion of M&A, decisions making will be driven by the strategic move to digital, and new disruptive business models on the corporate side.
CEOs will likely focus on divestitures as they restructure their portfolios for longer-term development and profitability, given market conditions that demand a more value creation mindset across global boardrooms.
The startup ecosystem is likely to continue strong in 2022, fueled by PE activity, with more new-age companies becoming unicorns. Many unicorns will become serial acquirers, causing a wave of consolidation among new-age businesses. In 2022, PE firms are projected to participate in more takeover and control transactions.
Although the IPO market frenzy is predicted to slow off both in terms of values and interest as post-listing blues hit the market, PE is expected to gamble on early-stage innovative companies, the report stated.