After a lull in deal-making activity (both private equity and M&As) post the credit crisis (in 2008), a slow revival in deals in 2009 gave way to a surge at the end of 2010. While certain sectors totally lost out in the business churn (read: real estate) and commodity price cycle (read:metals), others came to the forefront. Investors were particularly attracted to the domestic consumption story with deal flow in consumer goods and services industries besides the energy
vertical within the overarching infrastructure sector becoming the dominant theme of sector concentration. Here's a look at a handful of most active sectors in 2010 in terms of PE capital-raising and M&As, based on data from VCCedge:-
Consumer Staples: In a country with over 1 billion people, consumer staples is the evergreen sector where demand never shrinks. At best it shifts from high priced products to cheaper variants as large multinational giants have learnt the hard way. But, in a booming economy, there is space for everyone and that’s what’s playing out in the sector and attracting investors. Although there was a short term dip in deal flow as valuations were volatile between 2008-09, the sector was abuzz with action last year with almost two private equity deals every month not counting M&As like Reckitt Benckiser’s buyout of Paras Pharmaceuticals. Seen as the next big story after China where consumption rocketed with economic prosperity, global consumer goods makers and investors alike want a piece of the action. Investors in particular were attracted to firms in food business, milk products and edible oil, a sector that caught a particular fancy of ace investor C Sivasankaran. Marquee PE firms also joined the gold rush with Blackstone and Carlyle striking deals in the space.
Healthcare: This is another sector that never goes out of fashion. Traditionally healthcare has been associated with pharmaceutical firms or drugmakers, who were considered recession-proof. However, it takes more than just medicines to treat patients. While the big deal of the
year involved the drugs business, there were multiple deals (both M&A and PE transactions) spread across pharma and allied sectors such as hospital chains and diagnostic chains. The biggest of them all was Piramal Healthcare selling off its domestic formulations business to Abbott Laboratories making the US-based firm the largest seller of medicines in a highly fragmented market in India. While high valuations being paid by MNCs to snap Indian conquests signalled a desire to gain a bigger foothold in the country, others like Fortis tried unsuccessfully to become the largest hospital operator in Asia by acquiring Singapore’s Parkway. Fortis chose to cash out with a small profit. The group through privately owned arms have bought other healthcare firms. Watch out this sector for more consolidation moves.
Financial Sector: When a nation’s business is booming, financial services is its basic backbone. Last year saw a mix of large M&As including the large sized acquisition of private banking arm of
Belgian high street bank KBC by Hindujas. However, this was a rank exception as business houses and banks alike steered clear of exposing themselves to risks of acquiring global assets. As a result, most of the top deals in this sector were domestic in nature.
Other prominent transactions were spread across, bank mergers & acquisition, besides the lucrative deal to acquire I-banking business of Enam by Axis Bank, the third largest private lender in the country. This catapulted the sector amongst the most active last year, cutting as many as 93 M&A deals alone in 2010, just a tad short of the number of deals in 2008and 2009 combined. Interest in financial sector is only expected to grow further with proposed reforms in the banking sector.
Utilities: This is the most happening of segments within the infrastructure space. Investors are betting on the supply shortage in the country. Although numerous new projects are coming up that will meet the demand for electricity to run factories and computers alike, the capital intensive sector has a voracious appetite for funds in the short to medium term and investors are all too pleased to participate in the sector that brings assured returns for those willing to wait a few years. While globally, the big move is towards clean energy with renewable energy sources, India is still chasing coal fired or thermal projects in the short to medium term. Utilities has seen a secular rise in deal volumes and even values over the last six years. The game changer deal is yet to be signed but last year witnessed the biggest ever deal in the sector where a consortium of PE firms invested almost half a billion dollars in Asian Genco. The sector also saw marqueeVinvestors like Temasek, Blackstone and 3i and IDFC Private EquityVstrike deals in names like GMR Energy, Moser Baer Projects and GVK Energy.