Transactions 2017 - EYFILE/ey... · Transactions 2017: Inbound M&A takes centerstage | 3 Over the...

Transactions 2017

Inbound M&A takes center stage

2 | Transactions 2017: Inbound M&A takes centerstage

ContentsForeword ................................................................................................................................3

Mergers and Acquisitions (M&A) activity highlights ..............................................................4

Sector focus

1. Cement and building products ...........................................................................................10

2. Financial services .............................................................................................................12

3. Infrastructure ...................................................................................................................15

4. Oil and gas ........................................................................................................................18

5. Pharmaceuticals ...............................................................................................................20

6. Retail and consumer products ...........................................................................................22

7. Telecom ............................................................................................................................25

8. Technology .......................................................................................................................27

M&A Outlook ........................................................................................................................30

Appendices ..........................................................................................................................32

Methodology ........................................................................................................................35

3Transactions 2017: Inbound M&A takes centerstage |

Over the past year, the Indian economy has stayed resilient owing to a stable macroeconomic environment, eased credit conditions and the continued progress on policy reforms. Though the Indian government’s demonetization of high value currency notes is expected to create challenges for the economy in the short-term, it should help shore up public finances, while helping control inflation over the long-term. The Union Budget FY17-18, unveiled recently includes many progressive measures aimed at stimulating economic growth and further improving the ease of doing business in India, which could potentially help in making the business environment increasingly conducive for transactions.

The M&A activity in India over the past year was positive, owing to a large number of big-ticket announcements that drove total deal value to a record level, when evaluated over the previous six year timeframe. The cumulative domestic disclosed deal value also registered its highest level ever.

The cross-border deal activity also saw an increase despite global headwinds, such as Brexit and policy uncertainty in the US that impacted global currencies and capital markets. The inbound deal value soared significantly, on account of a US$12.9 billion announced acquisition of Essar Oil Limited by Russia-based Rosneft-led consortium, which is the largest ever single foreign direct investment.

The consistent focus on consolidation continued to be a dominating theme for M&A across sectors including insurance, online retail and telecom. Divestments and restructuring by Indian companies played a noticeable role in the M&A activity, which was evident from businesses’ incremental focus on de-leveraging balance sheets and streamlining of their operations. Companies from the power, cement and telecom sectors disposed-off their non-core assets with an eye on reducing their debt burden and channelling liquidity into their core businesses. Digitization also continued to be a major contributor to domestic M&A, with traditional brick and mortar and online retail companies, along with financial services players, acquiring companies with specialized technology that not only complemented their business models but also played a critical role in driving future business growth.

Cross-border activity was dominated by mega deals, especially in the oil and gas sector. While the inbound deal value was up, the volume was muted. However, the outbound activity gained both in terms of value and volume.

We expect the M&A activity to stay positive through 2017. Domestic activity should strengthen further due to a continuous consolidation across sectors. Additionally, business risk imperative to innovate will drive acquisition activity in the technology space. Lastly, cross-border activity is expected to stay vibrant across sectors like oil and gas, technology, pharmaceuticals and media and entertainment. All these aspects are expected to lead to vibrant M&A activity in 2017.

Foreword

Amit KhandelwalNational Director and PartnerTransaction Advisory ServicesErnst & Young LLP


Overall deal value records a new high since 2010 • In 2016, the overall M&A activity was robust owing to a

resilient domestic economy and stable capital markets. The deal value during the year reached a record high at US$56.2 billion (as compared to US$30 billion in 2015) since 2010. This increase in deal value was noticeable across all transactions - domestic, inbound and outbound.

• Interestingly, the year saw 60 restructuring deals worth US$7.7 billion as compared to 44 deals worth US$4.3 billion in the previous year. Excluding these deals, the value for the year stood at US$48.5 billion, which is still the largest value over the past six years. On the volume front, the year witnessed a marginal decline of 2% y-o-y (year-on-year), clocking 867 deals, as compared to 887 in 2015. However, the volume witnessed an increase when compared to 2014 (794 deals) and 2013 (762 deals).

• Domestic deals continued to dominate the Indian M&A landscape, as home-grown companies chose the inorganic route to generate growth in an environment that was conducive to deal-making. With 505 deals worth US$25.1 billion, these deals accounted for 58% and 45% of total volume and value, respectively.

• On the cross-border front, the deal value recorded an increase of 127% y-o-y, reaching US$31.1 billion in 2016 from US$13.7 billion in 2015, on account of four mega-deals (US$1 billion and above). These mega-deals contributed about 63% of the total cross-border deal value. However, there was a decline in the total number of deals, decreasing to 362 from 404 in 2015.

• The rise in cross-border deal value can be primarily attributed to a quantum leap in inbound deal value, which increased to US$21.4 billion in 2016 from US$9.9 billion in 2015, highlighting India’s continued attractiveness for foreign players.

• The oil and gas sector led in terms of the deal value, followed by the financial services sector. The deal that pushed the oil and gas sector to this leading position in terms of value was the largest deal of the year — the US$12.9 billion announced acquisition of Essar Oil Limited (98% stake) and Vadinar port by Russia’s state-controlled petroleum giant Rosneft Oil Company led consortium. From a volume perspective, the technology, infrastructure and financial services sectors dominated the charts, accounting for nearly one-third of the total announced deals in 2016.

India M&A highlights - 2016


27.2 28.4 27.4 30.0

56.2

835 762

794

887 867

600

700

800

900

1,000

-

30

60

90

2012 2013 2014 2015 2016

Num

ber o

f dea

ls

US$

bill

ion

Deal value (US$ billion)

Source: EY analysis of Thomson ONE data

Number of deals

Exhibit 1: M&A activities of Indian companies


Exhibit 2: Five most active sectors by deal value in 2016

19,615

7,297 5,239 4,557 4,041

0

5,000

10,000

15,000

20,000

25,000

Oil

and

gas

Fina

ncia

lse

rvic

es

Cem

ent a

ndbu

ildin

gpr

oduc

ts

Phar

mac

eutic

als

Infr

astr

uctu

re

US$

mill

ion


Exhibit 3: Five most active sectors by deal count in 2016

106 92 91

80

62

0

40

80

120

Tech

nolo

gy

Infr

astr

uctu

re

Fina

ncia

lse

rvic

es

Reta

il an

dco

nsum

erpr

oduc

ts

Prof

essi

onal

serv

ices

• The average deal size for 2016 edged up to US$161 million, which was a significant increase compared to US$97 million in 2015. This is the highest ever average deal value on record in the Indian M&A market.

Domestic activity dominates the Indian M&A landscape, anchored on consolidation

The year saw domestic deals worth US$25.1 billion, the highest yearly value on record. On the volume front, 2016 registered 505 deals, an increase of 5% against 2015. Consolidation deals by Indian companies formed a significant part of the domestic deal activity.

India’s M&A market witnessed consolidation across sectors as companies divested distressed assets in an effort to reduce debt. On the other hand, corporates with stronger balance sheets were seen deploying funds towards acquisitions and consolidating their market position. Amidst a business-friendly climate anchored on a stable macroeconomic environment, easing of credit conditions and continued progress on economic policy reforms, Indian companies across sectors chose M&A as a preferred route of growth.

• Market share expansion: The year saw a robust trend of mergers that provided companies an opportunity to strengthen their market position, which has until now been a rare phenomenon in the Indian context. Some key examples include:

• The HDFC Life and Max Life merger showcased the consolidation activity in the insurance space, primarily on the back of heightened competition, regulatory reforms and focus on deriving distribution synergies.

• Dish TV India Limited and Videocon d2h Limited agreed to merge their operations to create a leading cable and satellite distribution platform and pave the way towards consolidation in the highly fragmented cable and satellite sector in India. The current Dish TV shareholders would be the largest shareholders in this combined entity.

Consolidation was also a pronounced driver for the activity in the telecom sector, owing to the need for a larger share in spectrum for offering 4G data services and the inability of smaller players to cope with high spectrum costs. The year saw noticeable deals such as the merger between Reliance Communication and Aircel, acquisition of Videocon Telecom’s spectrum in six circles by Bharti Airtel and the acquisition of Aircel’s spectrum by Airtel, which are expected to lead to further consolidation across the sector.

• Reduction of debt: Consolidation was also evident as a key theme in few capital-intensive and cyclical sectors such as cement and power. Several companies in these sectors sold distressed/non-core assets to reduce debt and consolidate their core operations. The Reserve Bank of India (RBI) has set a March 2017 deadline for banks to declare their stressed and distressed assets, which is prompting banks to take a


tough stance on non-performing assets. Few important examples in this regard are:

• Sale of cement business arm of Reliance Infrastructure to Birla Corporation.

• Planned sale of Jindal Steel and Power Limited’s 1,000 MW power plant to JSW Energy Limited and others.

Other sectors that are expected to see consolidation in the future include healthcare, consumer products and oil and gas:

• Consolidation and fundraising are expected to drive deal activity in the healthcare sector. A highly fragmented market, a focus on expansion and new emerging healthcare delivery models will likely push the players in this space to consolidate.

• The consumer products sector also continued to witness consolidation on the back of burgeoning local competition, favourable demographics and evolving expectations of consumers.

• Within the oil and gas sector, exploration and production (E&P) companies continue to evaluate restructuring their asset portfolios with the objective of monetizing/reducing leverage amidst the prevailing low crude price environment.

Cross-border deal value doubles in 2016, thanks to big-ticket M&A transactions

The year 2016 recorded 362 cross-border deals with a cumulative disclosed deal value of US$31.1 billion. While the deal volume registered a decline of 10% y-o-y, value witnessed an increase of 127%. In 2015, deal volume and value stood at 404 deals and US$13.7 billion, respectively.

• The US continued to be the most active cross-border partner (50 inbound; 43 outbound deals), followed by the UK (21 inbound; 23 outbound deals) and Singapore (16 inbound; 8 outbound deals).

• Inbound activity emerges as a key contributor

• Inbound deal value registered an increase of 115% y-o-y, reaching US$21.4 billion in 2016 from US$9.9 billion in 2015. The significant jump in inbound deal value can be attributed to US$12.9 billion Essar-Rosneft-led consortium deal.

• On the volume front, technology was the most active sector for inbound M&A activity in 2016, followed by infrastructure, and the media and entertainment sector.

• Outbound activity also takes a leap, sustaining the momentum over the previous year

• On the outbound front, the year clocked 158 deals with a cumulative disclosed deal value of US$9.7 billion — registering an increase of 8% in terms of volume and 160% in terms of deal value respectively (146 deals constituting US$3.8 billion in 2015.)

• In terms of deal value, the oil and gas sector led the outbound activity this year, owing to two mega deals.

• A consortium formed by Oil India Limited, Bharat Petro Resources Limited and Indian Oil Corporation Limited signed an MoU to acquire 23.9% stake in JSC Vankorneft and 29.9% stake in LLC Taas-Iuriakh Neftegazodobycha from Rosneft for a total of US$3.3 billion.

• ONGC Videsh secured an approval to acquire a total of 26% stake in Russian oil company JSC Vankorneft from Rosneft for US$2.2 billion.

Exhibit 4: Geographical distribution of deals

2015 2016

Count Value (US$ million)

Count Value (US$ million)

Domestic 483 16,360 505 25,141

Inbound 258 9,949 204 21,396

Outbound 146 3,708 158 9,650

Total 887 30,017 867 56,187



Exhibit 5: Geographical spread of deals in 2016

54%

58%

By v

alue

By c

ount

55%

45%

29%

24%

33%

38%

16%

18%

12%

17%

2015

2016

2015

2016

Domestic Inbound Outbound


Technology and pharmaceuticals were the most active sectors in terms of volume from an outbound M&A perspective in 2016. While companies in the technology sector made outbound acquisitions to build competencies in new technologies, specifically so for the SMAC domain, the pharmaceuticals players took the inorganic route for market and product expansion.

Re-emergence of mega deals in 2016

The year witnessed an increase in disclosed deal value, primarily on the back of 12 mega deals (3 in 2015). This is the highest number of mega deals recorded post-2010. Notably, these deals accounted for 61% of the total deal value. The majority of these deals were domestic in nature (8 out of 12), accounting for 26% of the deal value, indicating solid business confidence in the domestic markets. Two mega deals each were witnessed on the inbound and outbound front.

Notably, three cross-border mega deals took place in 0il and gas sector, worth a combined value of US$18.4 billion. Leading Indian oil companies have signed a number of deals with Russian players, adding commercial depth to the strategic ties between India and Russia. These deals reflect the government’s resolve to push big-ticket oilfield acquisitions abroad with an eye on boosting India’s energy security.


Exhibit 6: Five most acquisitive nations (in terms of volume) of Indian companies in 2016

50

21 20 16 12

0

20

40

60

US

UK

Japa

n

Sing

apor

e

Fran

ce


Exhibit 7: Five most targeted nations by Indian companies in 2016

43

23

8 8 8

0

10

20

30

40

50

US

UK

UAE

Germ

any

Sing

apor

e

Restructuring deals gain traction during the year

Significant restructuring activity was seen during the year, focussed on achieving portfolio optimization, operational efficiency and unlocking value for the shareholders.

A total of 60 restructuring deals with an aggregate disclosed value of US$7.7 billion were recorded during 2016, as compared to 44 such deals worth US$4.3 billion in 2015. These deals constituted around 7% of the deal volume seen in 2016, as compared to 5% in the previous year.

Mergers and stake/asset transfers within group companies were a common phenomenon during the year. Some supporting deals include:

• Dalmia Bharat and OCL India, two group companies of Dalmia Bharat Group, approved their merger, a move that will create the fourth largest cement maker in the country with an installed capacity of 25 million tonnes per annum.

• Siemens Limited approved the sale and transfer of its healthcare undertaking to Siemens Healthcare Private Limited, a subsidiary of Siemens AG, for US$454 million, with the objective to focus on its core businesses - power generation and transmission and industrial automation.

• Fortis Healthcare Limited’s (Fortis) Board approved the demerger of its diagnostic business that housed its majority-owned subsidiary SRL Limited. The demerger shall be followed by SRL’s merger with Fortis’ listed subsidiary Fortis Malar Hospitals.


• The State Bank of India has approved its merger with its five associate banks and Bhartiya Mahila Bank. The deal will create a global sized bank with an asset base of over US$555 billion, rivalling the largest banks globally.

A few examples of spin-offs being concluded during the year include:

• Aditya Birla Group plans to merge its subsidiaries Grasim Industries Limited and Aditya Birla Nuvo Limited in an attempt to create a stronger entity. It also plans to spin off one of its financial services business with a focus on unlocking shareholder value.

• Talwalkars Better Value Fitness’ Board approved the demerger of its gym business into separate company, Talwalkars Lifestyles, in order to deliver management efficiencies and a sharper focus on its business operations.

Share repurchase was also a prominent aspect across many deals. The year saw various repurchase transactions by Public sector Units due to the government’s push to utilize their surplus cash in either capex or share buyback. Few examples include:

• NMDC agreed to buy back over 800 million shares worth US$1.1 billion, most of which will go to the government, which owns 80% stake in the company.

• Bharat Electronics agreed to buy back upto 16.6 million equity shares worth US$325 million.

• National Aluminium Company Limited decided to buy back 644.3 million shares or 25% of the paid-up capital from public shareholders for INR28.35 billion.

Digitization and disruptive technologies driving new wave M&A

Increased focus on innovation enabled by an advances in technology and digitization is disrupting business models across industries. At the same time, burgeoning internet penetration, coupled with changing customer behavior and expectations, is creating pressure on traditional brick and mortar players to develop an online presence. As such, the corporate strategy of India Inc. will likely be guided by acquisitions in the digital space that enables them to keep pace with unprecedented disruption and sector convergence. During the year, we saw large IT companies acquiring emerging technologies as they sought to introduce new capabilities, expand their digital businesses and innovate existing product offerings.

Online players are focusing on aqui-hiring players in the digital space to gain access to skilled talent

Companies are increasingly buying technology start-ups not only to support their products/apps or the websites, but also to gain the talent/teams that work for these entities. The primary focus is on identification of teams working on unconventional ideas/concepts and new-age technologies and get them on board by acquiring their companies. It is this section of tech mavericks that the large online players are targeting. Mostly, the start-ups are in the technology and e-marketplace that can complement and augment to the business models of the big e-commerce companies. Prominent examples of such deals include:

• Myntra has acqui-hired Cubeit, a Bengaluru-based start-up that facilitates content aggregation on mobile devices.

• Fintech startup Lendingkart Group has acqui-hired KountMoney, an online lending marketplace for personal loans, to boost its technology and data analytics capabilities.

• Voonik Technologies Private Limited launched a marketplace for premium boutiques and designers Vilara by acqui-hiring online occasion-wear brand Zohraa. It also acqui-hired Styl and Picksilk to strengthen its core offerings in technology and product.

Online players are also making acquisitions to expand market share

Consolidation continued to reign across deal activity in the e-commerce segment as players sought to expand their scale of operation, increase market share and gain access to new technologies. Against this backdrop, online players increasingly concentrated on acquisitions to meet the growing demand for online shopping and counter competition. Examples of such deals include:

• PayU, an online payments company owned by South Africa’s Naspers, acquired Mumbai-based payments technology player, Citrus Pay, for US$130 million in an all-cash deal. With this acquisition, PayU will be able to add more than 30 million people to its user base.

• Flipkart-owned Myntra bought its rival Jabong in a US$70 million all-cash deal to create India’s largest online fashion destination.

• Online food delivery platform Foodpanda’s acquisition of Delivery.com’s Hong Kong business aimed at driving higher growth in one of its key markets.


• Online classifieds company Quikr India Private Limited’s acquisition of Grabhouse, a Mumbai-based online home rental startup run by Cryptopy Technologies Private Limited, to strengthen its realty business vertical.

Offline players (across industries) focus on buying online brands to tap e-commerce market potential

Recognizing the need to enhance their mode of operation, home-grown brick-and-mortar players have also entered the online space through the inorganic route. The changing buying pattern of consumers – who expect to augment their convenience in terms of time and effort, a much wider product range and competitive prices – coupled with increased internet penetration is increasingly forcing traditional players to make a shift to online platforms. As a result, traditional retailers are venturing into the online space either through tie-ups (with e-tailers), acquisitions or launch of their own online portals. Some examples include:

• Tata group’s Titan bought an undisclosed majority stake in the online jewellery store CaratLane. The move will give Titan a toehold in the online segment, and CaratLane will get access to Tata’s luxury jewellery line Tanishq.

• Daily Delite India Private Limited, which runs three supermarkets in Delhi, acquired a fresh fruits and vegetable e-tailer, Delhimandi.com for an undisclosed amount.

• Pune-based casino and hotel operator Delta Corporation Limited agreed to acquire Gaussian Networks Private Limited, the operator of online poker site adda52.com for around US$27 million, marking its entry in the online gaming space.

Mobile wallets see heightened activity, stemming from demonetization

The government’s demonetization move has set the stage for a spurt in digital payments, paving the way for India’s journey

towards a cashless economy and digitization of financial services. Demonetization is now expected to act as a catalyst towards the digital payments ecosystem. People are signing up for e-payments and mobile wallets for their daily transactions. Digitization will also lead to greater financial inclusion across the country by compelling the rural population to use mobile banking for accessing payment, savings, insurance, credit services and micro-finance.

We expect to see digitization deals gathering pace in the mobile wallet space following India’s demonetization policy. It is being seen as an opportunity by key players in the mobile money market such as Paytm, MobiKwik, FreeCharge, ItzCash and Payworld as consumers gradually adopt alternative payment mechanisms.

Digitization and cross-sector competition/convergence have attracted heightened attention owing to the enormous disruptive potential across industries. Companies are looking beyond organic development to explore growth through acquisitions, JVs and alliances. This new form of dynamic and increasingly automated partnering in the business-to-business (B2B) market represents significant potential for growth that combines greater agility with lower costs. Looking ahead, we expect robust M&A activity unfolding in this space, with deals aimed at strengthening the market position anchored on high growth prospects, consolidation of business-verticals/segments and enriched offerings that harness new innovations.


Exhibit 8: Domestic M&A activities of Indian companies

13.9

6.2

16.2 16.4

25.1

452 448 431 483 505

0

100

200

300

400

500

0

10

20

30

2012 2013 2014 2015 2016

Num

ber o

f dea

ls

US$

bill

ion

Deal value (US$ billion) Number of deals


Consolidation and deleveraging rules the M&A landscapeThe year 2016 was a promising one for the cement sector, which recorded 17 deals with a total disclosed value of US$5.2 billion, the highest yearly deal value on record. When compared to the previous year, the deal value increased more than three times while the deal volume also grew by 21% y-o-y (14 deals in 2015). The sector’s M&A activity was dominated by domestic deals as the industry continued to witness consolidation activity. Notably, domestic deals accounted for 82% of the sector’s deal volume.

The cement industry includes a large number of cement manufacturers with many of these having small manufacturing units with an unfavourable cost structure. Cement players have continued to add capacity over the last decade, anchored on expectations around India’s growth and its infrastructure needs. This has resulted in a significant oversupply of cement, leading to a low capacity utilization rate and consequent operational inefficiencies. On the contrary, the demand in the industry remains sluggish, owing to a slump in the real estate and housing market. Other operational challenges that include a rise in production costs (freight, energy and limestone) and

a non-availability of wagons, have put significant pressure on companies’ profitability, thus making it unviable for many of these to operate.

The sector saw big consolidation deals where debt-ridden players divested their assets to repay loans. Leading domestic players with healthy balance-sheets took advantage of this situation and bought such stressed assets to build capacities, in anticipation of demand improving in the future. Key examples include:

• Sale of cement business arm, Reliance Cement Company Private Limited, of Reliance Infrastructure to Birla Corporation. for US$707 million, in a deal that will help Anil Ambani-led group to lower its debt burden.

• Orient Cement, a firm owned by the Chandra Kant Birla group, has agreed to acquire 74% stake in Bhilai Jaypee cement and Nigrie cement grinding unit in Madhya Pradesh from Jaypee group companies at an enterprise value of around US$293 million. The deal will help the Jaypee group to trim some of its debt.

During the year, we saw reorganization of a few big-ticket deals, due to regulatory hurdles. One of the clauses of mines and minerals development and regulation (MMDR) act did not allow

Sector focusCement and building products


OutlookConsolidation will continue to drive M&A activityThe Indian cement sector has been facing muted growth over the last few years. While near-term headwinds such as the recent demonetization move by the government may exert pressure on the demand for cement in the short-term, the long- term outlook for the sector looks positive on the back of a revival in the investment cycle that’s expected to occur with the government’s thrust on the infrastructure sector. In addition, a slowdown in the pace of capacity addition will also lead to an improvement in plant utilization rates over the coming years. Furthermore, the housing market, the biggest demand driver of cement, which accounts for about 67% of the total consumption, is expected to improve in the near-term. In the Union Budget FY17-18, the Indian government has stated its plans to build 1 crore houses by 2019 to provide homes to the homeless and those living in makeshift houses. Additionally, National Housing Bank will refinance individual housing loans worth INR20,000 crore during FY 2017-18. Hence, factors such as lower mortgage and government initiatives such as “Make in India”, “Housing for all by 2022” and the “Smart City” programs should enable a pick-up in housing activity, with potential to positively impact the demand for cement. We can expect a narrowing of the demand-supply gap over the coming years, thereby providing better pricing leverage to the industry players.

On the M&A front, consolidation is expected to be the biggest driver of deal activity in the sector, primarily due to divestment deals focused on de-leveraging balance sheets. Big players should keep on evaluating opportunities to build capacities through deep-value acquisitions with the sectors’ dynamics expected to improve in the future. Furthermore, regulatory and policy shifts pertaining to mining rights are expected to support this trend and aid stalled M&A deals in the sector.

the seller of the cement asset to transfer captive mines to the buyer of the cement plants, unless these mines were granted through auction. This led to the withdrawal of major M&A deals such as UltraTech Cement-Jaiprakash Associates and Birla Corporation-Lafarge India. To deal with the mining transfer logjam, companies restructured terms of the deal and decided to put their entire cement business on block. Examples include:

• Announcement of the purchase of Jaiprakash Associates’ 21.2 million tonne cement assets spread across five states, by UltraTech Cement for US$2.4 billion.

• LafargeHolcim’s agreement to sell its interest in Lafarge India to Nirma for an enterprise value of US$1.4 billion. The deal is an important step in LafargeHolcim’s larger CHF 3.5 billion divestment programme for the year.

Nevertheless, in May 2016 the Indian Parliament passed the amendment in MMDR act to allow the transfer of captive mines which have been allotted through a route other than auction to the buyers, which will remove the regulatory hurdles as mentioned above and facilitate deal-making in the sector.


Exhibit 9: M&A deals in the cement and building products sector

1,147 1,154

5,239

17 14

17

0

20

0

2,000

4,000

6,000

8,000

2014 2015 2016

Num

ber

of d

eals

US$

mill

ion

Deal value (US$ million) Number of deals

2014 2015 2016

Number of deals

Domestic 13 11 14

Inbound 3 3 1

Outbound 1 – 2

Total 17 14 17

Deal value (US$ million)

Domestic 1,071 768 5,231

Inbound 72 386 7

Outbound 4 – 1

Total 1,147 1,154 5,239



Regulatory reforms supported by growing digitization spurs deal-makingIn 2016, the financial services sector saw its highest ever yearly deal value on record, at US$7.3 billion — a more than two-fold increase as compared to 2015. However, the deal value was largely inflated due to two mega deals, which contributed around 83% to the total disclosed value. One of these deals was an internal restructuring exercise carried out by the Aditya Birla Group. On the whole, there were 8 internal restructuring transactions seen in the sector, accounting for around half of the total disclosed deal value. Even on the volume front, the sector witnessed significant activity, registering 91 deals as compared to 75 in the last year. Dominant segments within the sector included NBFC (27 deals; US$100 million), insurance (11 deals; US$3.3 billion), capital markets (12 deals; US$83million) and payment solutions (8 deals; US$130 million).

Consolidation in the insurance segment is on the cards

The market environment has been quite conducive for consolidation in the rapidly growing insurance industry. The heightened competition, regulatory reforms aimed at

promoting the insurance industry and the need to upscale to bring cost efficiency and increase customer base are the key drivers behind this trend. Given the push required to drive growth in the sales of insurance policies, distribution network becomes pivotal for the success of the business. During 2016, we saw certain deals/tie-ups taking place between insurance companies and banks to achieve a cost efficient distribution network and reach a wider customer base. These deals are expected to trigger further consolidation in the sector over the coming year. Few examples include:

• HDFC Standard Life Insurance Company Limited, Max Life Insurance Company Limited, Max Financial Services Limited and Max India Limited have agreed to merge their operations. As a part of the proposed transaction, Max Life will be merged into Max Financial Services, followed by a demerger of the life insurance undertaking from Max Financial Services into HDFC Life (the new merged entity). Max Financial, holding the residual business, will be absorbed by Max India.

• Axis Bank Limited acquired a 4.99% stake, increasing its stake to 5.99%, in Max Life Insurance Company Limited for US$13.9 million.

There were some deals in the health insurance space, anchored on foreign financial players’ continued interest in the India market, either by entering into a joint venture or by acquiring

Sector focusFinancial services


an additional stake in their existing business ventures. Health insurance sector in India offers tremendous opportunities given India’s demographics such as an aging population and increased life expectancy. Other factors which will also lead to a rise in healthcare spending include rapid progression of medical technology, increasing incidences of lifestyle diseases and favourable regulatory interventions. Some examples are:

• German firm Munich Re announced to buy an additional 23.27% stake (raising the stake to 49%) in Apollo Munich Health Insurance from its joint venture partner, Apollo Hospitals for US$24 million.

• South African financial services group MMI Holdings has agreed to form a 49:51 health insurance JV with Aditya Birla Group.

Increased efforts to drive financial inclusion boosts deal activity in microfinance and fintech

Microfinance was an active segment in 2016, considering that financial inclusion remains at the heart of the government’s policy agenda. Given the saturated nature of urban markets and the government’s continued efforts to promote inclusive growth, significant growth opportunities could be seen for players operating in the rural banking space. This was evident during the year, with Indian banks buying microfinance providers to cater to the financial needs of unbanked and unserved segments of the country. This move also helped the banks to fulfil the obligations set out by the RBI on priority sector lending. Prominent examples which support this trend are:

• Kotak Mahindra Bank Limited agreed to purchase 99.49% equity shares of BSS Microfinance Private Limited, for US$20.8 million.

• IDFC Bank acquired a 9.99% stake in ASA International India Microfinance for about US$1.3 million.

The year also saw NBFC’s, which have received small finance bank (SFB) license, engaging in capital raising activities via stake sale to domestic investors as a mean to reduce foreign shareholding to comply with the RBI’s norms. In the latter half of 2015, RBI had granted an in-principle approval to ten entities (out of which eight were micro finance institutions) to set up SFB’s, which are required to reduce their foreign shareholding below 49%, to become eligible to apply for a final SFB license. Leading examples are:

• Utkarsh Micro Finance Private Limited has raised fresh capital of around US$59 million from several domestic institutional investors.

• Suryoday Micro Finance has raised an undisclosed amount of fresh equity capital from a clutch of domestic investors, including IDFC Bank, HDFC Standard Life and a couple of other family offices.

Increased usage of new technologies in the financial services sector is playing a crucial role in achieving financial inclusion. Also, improved access to high speed internet will continue to transition consumers towards digital transfers, thus attracting companies to enter/expand their presence in the mobile payments solutions space. In addition, the recent demonetization by the government has provided a push to the country’s emerging digital payments market. Few of the supporting deals are:

• PayU, the digital payments provider owned by South Africa’s Naspers Group, acquired Indian payments technology player, Citrus Pay, for US$130 million.

• Domestically, marketing technology firm Hansa Cequity bought Inloyal, a mobile wallet, to grow its product and platforms business.


Exhibit 10: M&A deals in the financial services sector

3,369 2,687

7,297

49

75

91

0

20

40

60

80

100

0

2,000

4,000

6,000

8,000

10,000

2014 2015 2016

Num

ber o

f dea

ls

US$

mill

ion


2014 2015 2016

Number of deals

Domestic 34 39 72

Inbound 14 35 12

Outbound 1 1 7

Total 49 75 91


Domestic 3,185 718 7,077

Inbound 181 1,869 211

Outbound 3 100 9

Total 3,369 2,687 7,297



OutlookThe sector will continue to attract investor’s attentionDeal activity in the financial services sector will be majorly driven by payment solution companies, NBFCs (in particular micro finance players) and insurance companies. We are likely to see a renewed interest in the fintech space post demonetization, which will lead to greater technological innovations, creation of newer business models and offer a strong support in helping the country become a less-cash economy. Furthermore, recently proposed excise and customs duty exemptions in the budget for Miniature POS machines, iris/ fingerprint scanners, etc. should also drive adoption of cashless facilitating techniques. Thus, a surge in the adoption of digital payments over the coming years will boost the business of online wallet firms, providing an impetus to M&A activity.

We expect to see fund-raising by NBFCs and micro finance companies as well as consolidation in the micro finance space. The rapid growth in the microfinance segment is likely to encourage private sector banks to tap the opportunity thrown by underserved rural sector of the country. Furthermore, the government’s continued efforts to encourage inclusive growth is expected to accelerate deal-making in this space.

The booming insurance sector is also expected to see consolidation and shareholding changes, driven by the change in FDI regulations. Increasing opportunities could be seen in the insurance sector on the back of rising competition, lower penetration and supportive regulatory measures. Seeking to attract more foreign investment, the government relaxed FDI norms for the sector in March 2016, by permitting overseas companies to buy 49% stake without prior approval. Earlier, for FDI up to 49%, the approval of the Foreign Investment Promotion Board was required. This is likely to drive transactions pertaining to changes in existing shareholder patterns and attract fresh investments in the sector.


Cleantech and logistics segment continue to provide solid ground for M&A activityThe Indian infrastructure sector clocked 92 deals with an aggregate disclosed deal value of US$4 billion in 2016. Compared with 2015, deal value surged by nearly 78% from US$2.3 billion, while deal count remained largely stable (93 deals in 2015). The increase in deal value was primarily due to two mega deals recorded in 2016, as against no such deal in the previous year, in the power sector.

Within infrastructure, the power segment (especially cleantech) hogged the limelight as it cumulatively accounted for 53% of the total volume and 86% of the total M&A value of the sector. Logistics and transportation was another active segment, constituting 23% of the total M&A volume.

Clean energy continues to remain at the forefront

India’s heavy reliance on imported fossil fuels, a persistent shortfall in power supply and a global shift towards green energy are acting as key triggers for the government’s

increasing focus on clean energy sources. To encourage private players to enter the segment, the government is offering various incentives such as generation-based incentives (GBIs), capital and interest subsidies, viability gap funding and concessional finance.

Both local and foreign renewable energy players have shown an interest in acquiring clean energy portfolios in India. As per media reports, Japan’s Sumitomo Corporation and France-based EDF have plans to set up manufacturing facilities in India. The World Bank has also committed to invest nearly US$1 billion India-based solar energy projects. At the same time, the US-based PE player IFC agreed to invest US$125 million in Hero Future Energies Limited, the renewable energy arm of the Hero Group, to fund construction of its solar and wind power plants. Domestically, the Adani Group opened the world’s largest solar plant in Tamil Nadu in 2016, and Tata Power announced that it aims to generate as much as 40% of its energy from renewable sources by 2025. NTPC also announced plans to become the country’s largest renewable energy company.

Industry wise, the renewable energy market is fragmented, with a large number of small players. With the rapid growth of the sector, large players are more interested in acquiring new and smaller players to increase their capacities. The inorganic route is seen as a convenient way to expand compared to time-consuming pre-development work and

Sector focusInfrastructure


existing competitive bidding of the projects. Hence, we could see more of consolidation deals going forward. Key examples of consolidation deals include:

• Sembcorp Green Infra, a subsidiary of Singapore-based Sembcorp Industries Limited, acquired a 74% stake in Mulanur Renewable Energy Private Limited for around US$24 million.

• ReNew Power Ventures acquired two cleantech assets — Shruti Power Projects Private Limited and Helios Infratech Private Limited in separate transactions.

• Tata Power Company Limited acquired the renewable energy business of Welspun Enterprise Limited at an enterprise value of US$1.4 billion.

On the other hand, the sector also witnessed deals where sellers divested their assets to pare debt. While many companies have entered the power segment over the last decade; issues such as land acquisition hurdles, regulatory approvals, and delay in environmental clearances have stalled many big projects and led to cost escalation. This, coupled with highly-leveraged balance sheets due to aggressive capex plans and adverse financing conditions, is exerting a drag on the already-indebted companies. Few examples of deleveraging deals include:

• Orient Green Power Company agreed to sell its 20 MW biomass plant in Maharashtra to Singapore-based Sindicatum Captive Power for US$12.1 million.

• SunEdison Inc. agreed to sell its Indian assets to Greenko Energy Holdings.

Expansion drove deals in the logistics segment

Global as well as local players acquired Indian logistics companies to strengthen their product offerings and expand geographic coverage. With rising demand for transportation and warehousing services especially by e-marketers, logistics is an emerging segment with potential for growth. Some of the deals supporting this trend are as below:

• Hong Kong-based Kerry Logistics Network Limited bought a 50% stake in Indev Logistics Private Limited, a Chennai-based logistics company, for expansion purposes.

• Indian conglomerate TVS Group, through its subsidiary Rico Logistics, acquired an undisclosed majority stake in the UK-based Circle Express to strengthen its same-day delivery capabilities.

With the tech-savvy gen-next population increasingly shopping online, third-party logistics firms are riding high on the e-commerce boom. E-retailing has driven investment and value in the logistics sector, which has spawned a new class of third-party operators. Examples include:

• New Delhi-based truck aggregator Moovo acquired smaller rival GoGoods to expand its geographic network within India.

• Online take-away delivery firm Foodpanda acquired the Hong Kong assets of the US-based Delivery.com as it consolidates its position in key markets while shedding assets elsewhere.

2014 2015 2016

Number of deals

Domestic 49 66 60

Inbound 29 21 25

Outbound 7 6 7

Total 85 93 92


Domestic 4,868 1,757 3,397

Inbound 720 437 644

Outbound 36 79 –

Total 5,624 2,273 4,041



Exhibit 11: M&A deals in the infrastructure sector

5,624

2,273

4,041

85 93 92

020406080100120

0

2,000

4,000

6,000

8,000

10,000

2014 2015 2016

Num

ber

of d

eals

US$

mill

ion



OutlookGovernment’s thrust on the sector will propel deal activityThe infrastructure sector is highly responsible for propelling India’s economic development and enjoys intense focus from the government. The government has taken several initiatives to ensure rapid infrastructure development — earmarking nearly US$14.3 trillion on roads and highway projects, plans to develop 100 smart cities, and railway investments worth US$140 billion over the next five years. As expected, infrastructure was also the key focus of the Union Budget FY17-18. The Finance Ministry recognized railways, roads and rivers as the lifeline of the country by announcing a proposal to introduce new Metro Rail policy and new Metro Rail. These policy frameworks for innovative models of implementation and financing would facilitate greater private participation and investment in the sector.

Accordingly, deal-making activity is expected to increase in the sector, especially in the roads and highways segment. Fund raising will continue to drive deal activity in the infrastructure segment, with a push from lenders and/or need of sponsors to deleverage. Infrastructure investments trusts (InvIts) could be an emerging theme in 2017 due to their ability to provide low-cost financing for the sector.

At a sub-sector level, we will continue to see heightened deal activity in renewables and roads/highways space. Deal activity is likely to remain strong in the power segment as several operational portfolios in the renewable segment come up for sale/private investment, and industrial players continue to shift their focus to cleaner sources of energy. At the same time, the logistics segment will likely see a rise in activity, thanks to the rising popularity of online shopping and government initiatives. The approval of the GST bill is also expected to change the dynamics of the logistics sector. The implementation of GST will likely open opportunities for logistics players by allowing them to aggregate state-based warehouses into large, regional warehouses that offer cost and operational efficiencies in big markets.


Oil and gas sector tops the sector value charts with billion dollar-plus dealsThe year 2016 was a blockbuster for the oil and gas sector. A total of 18 deals having a disclosed deal value of US$19.6 billion were recorded, the highest deal value ever for the sector, on the back of the announced US$12.9 billion Essar-Rosneft deal. The sector also registered the most robust deal value across all sectors.

Cross-border transactions involving Russian companies drove the sector’s activity

Russia has been a long-standing partner of India with strong bilateral ties. The Indo-Russian relations have strengthened over the years, with increasing cooperation across diplomatic and business areas including national security, trade, science and technology. In 2016, we saw a big push in Indo-Russian ties with several big-ticket M&A deals in the oil and gas sector. Russia was a strategic partner in four cross-border oil and gas transactions — as an acquirer nation in one inbound deal and as a target nation in three outbound deals.

On the inbound front, Russia’s Rosneft-led consortium announced to acquire a 98% stake in Essar Oil Limited for US$12.9 billion, through two separate agreements. The first agreement saw the sale of 49% interest to Petrol Complex Private Limited (a subsidiary of Rosneft) and the second included the sale of the remaining 49% to Kesani Enterprises Company Limited (owned by 2 consortium players ) at an enterprise value of US$10.9 billion. The buyers also agreed to acquire Essar’s Vadinar Port for an additional US$2 billion, taking the total deal value to US$12.9 billion and making it the single largest foreign investment in the Indian refining sector till date. This transaction was the biggest M&A deal in India and also the largest outbound deal for Russia in 2016. The all-cash deal is expected to close in the first quarter of 2017. This sale would enable Essar to trim its debt and support Rosneft’s strategy to penetrate in South Asia for Russian downstream investments.

During the year, we also witnessed some big-ticket outbound deals, driven by India’s consistent focus on ensuring its energy security. Deal-making in the sector was dominated by public sector undertakings, since the government has been encouraging state-owned companies to aggressively pursue acquisitions of energy assets overseas.

Sector focusOil and gas



Exhibit 12: M&A deals in the oil and gas sector

574 2,175

19,615

16 9 18

0

20

40

60

80

100

0

5,000

10,000

15,000

20,000

25,000

2014 2015 2016

Num

ber o

f dea

ls

US$

mill

ion


2014 2015 2016

Number of deals

Domestic 7 4 9

Inbound 2 2 4

Outbound 7 3 5

Total 16 9 18


Domestic 72 2,159 1,219

Inbound 6 – 12,936

Outbound 496 16 5,460

Total 574 2,175 19,615

Key examples include:

• ONGC Videsh secured an approval to acquire a 26% stake in Russian oil company JSC Vankorneft from Rosneft for US$2.2 billion.

• A consortium led by OIL India Limited, Indian Oil Corporation Limited and Bharat Petroleum Corporation Limited signed agreements to acquire stakes in two Russian oilfields for a total of US$3.26 billion. The acquisitions include - a 29.9% stake of Russia’s Taas-Yuriakh oil field in East Siberia from Rosneft for about US$1.24 billion and a 23.9% stake in Rosneft’s Vankor project for around US$2.02 billion.

OutlookQuest for energy security is expected to drive overseas acquisitionsSeeking to secure energy sources, Indian Inc. will continue to make major overseas investments in oil and gas assets. At the same time, the global market is flourishing with low-priced deep value assets as many players with stretched balance-sheets are looking to monetize their assets, in the wake of persistently low crude oil prices. Therefore, M&A activity in oil and gas sector is likely to stay healthy in coming years as national oil companies will continue to scout for E&P assets in CIS, Latin America and Africa.

On the domestic side, we can witness consolidation in the E&P space. As per media reports, the government is considering a merger of 13 state-held oil companies, such as Oil and Natural Gas Corporation (ONGC), as well as IOC, BPCL, Hindustan Petroleum, GAIL, among others, into one big company that could compete with the big global players. A merger of this size should alter the industry dynamics and possibly trigger gradual acquisition of relatively smaller players.


Cross-border activity dominated the sectorThe pharmaceuticals sector witnessed 51 deals being announced in the year 2016, with aggregate disclosed deal value of US$4.6 billion. Outbound and domestic transactions drove most of the deal activity, with 21 deals each. In terms of disclosed deal value, outbound and inbound activity stood at US$2.1 billion each. Domestic deal-making was concentrated in smaller value bands with an aggregate deal value of US$342 million, of which US$272 million (4 deals) worth of deals were restructuring deals.

On industry sub-segments, sterile injectables led the pack with nearly US$2 billion of deal value, followed by other generic formulations with an aggregate deal value of US$1.6 billion. There were two deals in the CDMOs/CROs segment worth US$258 million, and 7 relatively smaller deals (worth US$42 million) in the biotech segment.

Inbound interest in sterile injectables continued

India continues to enjoy a prominent position in the global generic pharma space, due to the large number of USFDA approved sites coupled with low capex and operating costs.

The recent change in FDI regulations also augurs well for deal sentiment, given that, brownfield investments of upto 74% (as against 49% earlier) are now allowed under the automatic route. Two large inbound sterile injectable deals were announced this year, both of which have been in the making for a long time:

• China-based Shanghai Fosun Pharmaceutical (Group) Company Limited announced the acquisition of an 86% stake in Gland Pharma Limited for up to US$1.26 billion.

• US-based Baxter International Inc. entered into an agreement to acquire Claris Injectables Limited, a wholly owned subsidiary of Claris Lifesciences Limited, for US$625 million.

Indian pharma majors continued their quest for market and product expansion overseas

The trend of comparatively larger (by Indian standards) overseas acquisitions that was kicked off in 2015 continued in the year 2016 as well. Indian players continued to look for access to under-penetrated markets and expand their product offerings. The major outbound deals announced during the year were:

• Intas Pharmaceuticals Limited, through its wholly owned subsidiary Accord Healthcare Limited, entered into an agreement to acquire Actavis UK Limited and Actavis Ireland Limited from Teva Pharmaceutical Industries Limited for an enterprise value of US$767 million.

Sector focusPharmaceuticals


• Dr. Reddy’s Laboratories entered into an agreement with Teva Pharmaceutical and an affiliate of Allergan plc to acquire a portfolio of eight ANDAs in the US for US$350 million.

• Sun Pharma forayed into the Japanese prescription market by acquiring 14 brands from Swiss drug firm Novartis for US$293 million.

• Lupin Limited strengthened its position in Japan by acquiring 21 products form Shionogi & Company Limited for US$150 million.

A bunch of smaller deals were announced by Indian pharma companies in emerging markets:

• Sun Pharma, through its wholly owned subsidiary, announced to acquire 85.1% stake in Russia-based JSC Biosintez, for US$60 million.

• Strides Shasun acquired a 51% stake in Australia-based Generic Partners for US$17.7 million. In another transaction, Strides Shasun announced the acquisition of a majority stake in Kenya-based Universal Corporation for US$14 million.


Exhibit 13: M&A deals in the pharmaceuticals sector

4,137

3,116

4,557

48 53 51

0

20

40

60

80

100

120

0

2,000

4,000

6,000

2014 2015 2016

Num

ber o

f dea

ls

US$

mill

ion


2014 2015 2016

Number of deals

Domestic 20 21 21

Inbound 12 11 9

Outbound 16 21 21

Total 48 53 51


Domestic 3,543 209 342

Inbound 384 1,155 2,099

Outbound 210 1,752 2116

Total 4,137 3,116 4,557


OutlookGiven recent policy announcements made in the US on drug price controls, bidding processes for generics, a potential “border adjustment tax”, and degrees of outsourcing/ offshoring by US Pharma companies, we remain cautiously optimistic on the US-India inbound deal corridor at this time. While it is true that India continues to offer competitive advantages to US pharma companies as a development & manufacturing base for Generics, it remains to be seen as to what impact the aforementioned policy-related announcements might have on inbound deal sentiment in the short to medium-term. On the other hand, 2017 might be a promising year for outbound activity from India to the US, given that US valuations have significantly corrected and there aren’t too many US-based acquirers with adequate financial strength. This presents Indian pharma companies with a much-needed opportunity to step in and close portfolio gaps at reasonable prices.

While the Japanese government has been vocal on the need for broad-based introduction of generics, it is yet to reflect at a ground level. Nonetheless, we believe that the opportunity will open up in the medium to long-term. This promise continues to inspire Indian pharma companies to build/consolidate their positions in Japan.

Back home, domestic consolidation in the industry will continue. The pace of such consolidation, as always, will continue to be dominated by succession and wealth-diversification related considerations, even though business fundamentals such as price controls and the lack of product pipelines will also play its part.


Domestic activity continues to top the M&A chartsThe retail and consumer products sector recorded a decline in both, deal activity and deal value. The year witnessed 80 deals having an aggregate disclosed deal value of US$635 million, as compared to 97 deals with a total value of US$2.4 billion in 2015. The dip in deal value was primarily due to missing big-ticket deal (US$500 million and above) activity in 2016, while the last year had seen two such transactions. Similar to the trend seen in previous years, domestic deals continued to dominate the M&A activity in terms of volume, accounting for nearly 63% of the total activity in the sector. On the value front, domestic and inbound deals lead the show, contributing 53% and 46% to the total deal value, respectively. Prominent deals were seen across sectors, such as online retail, food and beverage (F&B) and personal care and homecare.

Online retail segment continued to dominate sector’s M&A

E-retail dominated the M&A activity of the sector, with 26 deals having a disclosed value of US$200 million. It sustained the momentum witnessed last year with greater internet and mobile penetration, a rise in online shoppers and an increase

in per capita income. Significant activity was seen in the online retail space that was driven by companies’ efforts to strengthen their business models by combining offline and online platforms and the consolidation seen in the sector. The sector might face short-term headwinds as the recent demonetization initiative might have a negative impact, though temporary, on the sales of online retail companies which are heavily dependent on cash on delivery payments. However, in the long run, it will push the consumers to opt for digital transactions, thus boosting the overall growth for the industry.

Maximum activity was witnessed in the online fashion marketplace and online restaurants/booking portals.

• Online fashion is in vogue. Online fashion provides an immense opportunity for new and existing players in the market. Considering it constitutes the highest volume of online sales in India, Indian online fashion players are acquiring their peers to capture a larger market share and derive synergies. On the other hand, brick and mortar players are entering this space through acquisitions. Few examples include:

• Flipkart-owned, Myntra, bought its rival Jabong in a US$70 million deal that created India’s largest online fashion destination.

Sector focusRetail and consumer products


• Titan Company Limited agreed to buy a majority stake in the online jewellery chain Caratlane.com for US$53 million.

• Online baby care store FirstCry (BrainBees Solutions Private Limited) has acquired the franchise division of Mahindra Retail Private Limited, for US$54.3 million – a move that is expected to help the company significantly expand its offline presence.

• Online food industry is witnessing consolidation due to intense competition and a slowdown in investments. Amid the e-retail euphoria, food technology remained one of the most talked-about segments in 2016. The culture of eating outside is now accompanied equally by the comfort of getting the food delivered at home, thereby providing a push to the online food market. Online restaurant booking, online food ordering and delivery market is mushrooming with the changing lifestyle of modern urban households, resulting in the abundance of many “me-too” players. Thus in order to strengthen their presence and deepen their service/product offerings, the players are making acquisitions or entering into partnerships with rivals. Few examples include:

• InnerChef has acquired Bengaluru-based EatOnGo (on-demand meal service) and Gurgaon-based Flavour Labs (a food truck company).

• Hello Curry Private Limited has acquired The First Meal to enter the breakfast and meal box segment.

Domestic activity dominates F&B

The F&B segment continued to be one of the active segments – 20 deals with US$34 million value – registered on the back of favorable demographics. Within the segment, deals were widely scattered across packaged food and food essentials including sugar, rice and oil. The packaged food industry is seeing a greater push, on the back of increasing disposable income of the consumers, improving standards of living and a shift in food habits. In order to capitalize on the opportunities offered in this growing segment, domestic and international players are exploring the inorganic route to expand their offerings and cater to a larger market. Few examples include:

• Restaurant chain Sattviko has acquired Delhi-based packaged food maker FYNE Superfood for an undisclosed amount to boost its packaged products business.

• The Board of Directors of Bannari Amman Sugars Limited have approved the proposal to takeover Madras Sugars Limited by way of a merger.


Exhibit 14: M&A deals in the retail and consumer products sector

3,393 2,415

635

92 97 80

020406080100120

01,0002,0003,0004,0005,0006,000

2014 2015 2016

Num

ber o

f dea

ls

US$

mill

ion


2014 2015 2016

Number of deals

Domestic 60 68 50

Inbound 16 22 13

Outbound 16 7 17

Total 92 97 80


Domestic 171 1,284 338

Inbound 3,110 1,131 292

Outbound 112 – 5

Total 3,393 2,415 635



OutlookStrategic consolidation of online and offline retail players is likely to sustain momentum in the coming year

Overall, we expect online retail, F&B and consumer durables and appliances to continue capturing M&A headlines.

With an increasing focus on digitization and the recent demonetization move of the government, online transactions are likely to see an upsurge – thereby providing a push for deal-making in e-retail space in the long-term. On one hand, traditional retailers are entering the online space, and on the other hand, online retail players such as Flipkart, Snapdeal and Myntra are willing to enter brick and mortar space – thus the convergence of “brick and mortar” and online “click” is going to be a prominent theme in 2017. In an attempt to serve greater customer base and cater to the heightened competition, we are likely to witness significant action around retailers adopting an omni-channel strategy, in order to thrive and survive in the fiercely competitive environment.

Consolidation and fund-raising is expected to drive the activity in the F&B space in order to benefit from the segment’s high growth and also to counter increasing competition from new players. We also foresee deals in consumer durables and appliances segment as growing expectations of customers and fast evolving lifestyle will force players to look for technological advancement and scale expansion for providing value added services in a cost effective manner.

We will continue to witness action in the personal care and homecare markets in an urge to increase their geographical presence. Indian companies, especially the ones with strong balance sheets will continue to scout for overseas opportunities in the emerging markets of Africa and South East Asia.

The sector could also witness domestic transactions where sponsors look to monetize their brands opportunistically. We expect players to engage in modifying their portfolios, exiting non-core segments and expanding into new product categories.

In addition, the recent announcements in the Union Budget will likely augur well for the inbound investments in the sector. In particular, the announcement of abolishment of Foreign Investment Promotion Board in the coming year should make FDI vide the approval route a smoother process, especially benefiting Single Brand Retail Trading (SBRT) and Multi Brand Retail Trading (MBRT) companies looking to invest in India. Further, the Indian Finance Ministry has indicated liberalization of FDI norms in the coming year, which may be expected to include further liberalization with respect to mandatory sourcing requirements for FDI in SBRT exceeding 51%, requisite conditions for FDI in MBRT, e-commerce entities etc to attract further FDI in this sector.


Consolidation is the talk of the townThe telecom sector recorded a healthy deal activity with 19 deals having a total disclosed deal value of US$2.4 billion in 2016. M&A activity was largely distributed between domestic (9 deals; US$1.2 billion) and inbound deals (7 deals; US$1.1 billion) with outbound deals (3 deals; US$0.1 billion) contributing the least. Bharti Enterprises was the most active player in telecom M&A with eight deals worth US$2 billon. The player was seen making deals in spectrum and mobile-tower segments.

Intense competition drove the deal activity

Deals for spectrum acquisition in the Indian telecom sector were primarily driven by a need to consolidate 4G spectrum by the players, owing to robust growth in data usage and also heightened competition due to the entry of new operator - Reliance Jio. Additionally, given the cost of acquiring new spectrum and the growing competition also led to mid-market players to look at consolidation to realize synergies and gain market share to address competition from the bigger players. Regulatory reforms such as the Department of

Telecommunications’ issuing guidelines to allow mobile phone companies to trade spectrum among themselves also facilitated such consolidation. Key examples include:

• Bharti Airtel entered into a definitive agreement with Videocon to acquire the rights to use 1800 MHz spectrum in six circles for US$659 million.

• Airtel has agreed to acquire rights to use 4G airwaves of Aircel in eight telecom circles for US$524 million.

During the year Indian telecom operators also explored the possibilities of monetizing their tower investments to fund their core businesses. The deals were aimed at reducing capital expenditure on passive infrastructure and promoting sharing of towers to enhance operational efficiencies. A few transactions in this space included:

• Bharti Airtel Africa agreed to sell 950 mobile towers in the Congo to telecom infrastructure company Helios Towers Africa.

• Bharti Airtel agreed to sell around 1,350 towers to American Tower Corporation in Tanzania through its subsidiary Airtel Tanzania.

Sector focusTelecom


Largest consolidation deal witnessed between Reliance Communication (RCOM) and Aircel

The merger between Reliance Communication RCOM’s (wireless business) and Aircel was another notable event deal in the sector’s deal landscape in 2016. This merger also happens to be the sector’s largest consolidation deal so far. The RCOM-Aircel combination is expected to create a strong operator clearly ranked amongst India’s top four telecom companies by customer base and revenues. The transaction is likely to be closed in early 2017 and will need regulatory, court and shareholder approvals.

2014 2015 2016

Number of deals

Domestic 4 5 9

Inbound 8 8 7

Outbound 1 3 3

Total 13 16 19


Domestic 8 5,885 1,214

Inbound 1,300 2,004 1,083

Outbound 240 6 127

Total 1,548 7,895 2,424



Exhibit 15: M&A deals in the telecom sector

1,548 7,895 2,424

13 16

19

0

5

10

15

20

0

2,000

4,000

6,000

8,000

10,000

2014 2015 2016

Num

ber o

f dea

ls

US$

mill

ion


OutlookContinued consolidation imminent

The telecom sector is expected to see more intensive consolidation activity in the coming months as several telecom operators in the country are reeling under debt pressures which restrict their ability to acquire more spectrum and expand their footprints and may look to sell their assets. The current market scenario is highly competitive with high spectrum costs and aggressive pricing. Mid-tier and smaller players may opt for tie-ups/alliances with their bigger peers, as the mobile penetration has almost peaked in the country and hence, size alone can help them sustain themselves in this fierce business environment. We could also see unprofitable telecom operators making an exit. Additionally, they will now be able to monetize their under-utilized spectrum, thus giving them ability to realize their investments thus far. Given the operator consolidation, we also expect 2017 to see continuing monetization of tower assets by telecom companies and independent tower operators, on the back of mounting debt-pressures.


Technology continued to lead the deal activity in terms of volume The technology sector recorded 106 deals having a cumulative disclosed deal value of US$2.1 billion in 2016. Compared with the previous year, deal volume declined by 8% (115 deals recorded in 2015), while deal value rose by 49% (US$1.4 billion in 2015). Building on the previous year’s trend, deals with undisclosed value characterized the sector’s M&A activity in 2016 (72 deals out of 106). On the cross-border front, the US continued to be the most active partner with the highest number of inbound and outbound transactions. The US was engaged in nearly 50% of the cross-border transactions with India (32 deals out of 62 deals).

SMAC applications — redefining the way businesses operate

SMAC (social, mobility, analytics and cloud) technologies continue to hold attraction for the technology sector. Organizations are adopting SMAC as an all new integrated IT model that helps them to be more productive and collaborative, not only to address competition, but also connect them to customers and respond on a real-time basis. While each of the four SMAC components is capable of improving a business on its own, integrating them into a “stack” makes them much more

powerful and enables companies to improve their production, efficiency and overall quality.

• IT players are increasingly acquiring SMAC capabilities to innovate their capabilities: SMAC is gathering a lot of attention among technology players as increasing internet penetration is pushing players to innovate their capabilities. Within the technology sector, deals are aimed primarily at growing market share, enhancing service offerings and addressing customers’ changing digital behaviors. Examples include:

• Wipro Limited acquired Appirio Inc., a US-based cloud services firm, for US$500 million.

• US-based Boomtrain Inc. entered into an agreement to acquire Nudgespot, a Bengaluru-based artificial intelligence—driven messaging platform, for an undisclosed amount.

• Kellton Tech Solutions Limited acquired Bokanyi Consulting, a US-based player serving in enterprise, cloud and analytics space.

• SMAC being adopted across industries: SMAC is revolutionizing business processes across multiple industries as players are embracing new technology formats to ensure operational efficiency, cost optimization and offer additional services to their customers. As a result, companies operating

Sector focusTechnology


in other sectors are making acquisitions in the SMAC segment primarily to acquire talent and gain access to new product or service innovation.

With the new-to-net population gaining internet exposure on mobile phones, mobility has taken center stage within SMAC. Online retail players have been quite active in acquiring emerging mobile software developers, as they are striving to build in-house capabilities for a robust mobile presence. This is resulting in flourishing deal activity in the sector. Key deals that highlight this trend include:

• Voonik Technologies Private Limited acquired Dekkoh, a fashion discovery platform.

• Apollo LogiSolutions Limited bought a controlling stake in Wifin Technologies (India) Private Limited, a Chennai-based mobile applications and solutions company.

• Zomato’s acquisition of Sparse Labs, a logistics technology startup specializing in helping restaurants track delivery drivers.

Analytics is also gaining prominence across sectors. With the rise of mobile, social media and cloud, businesses nowadays have access to considerable data. The ability to analyze such huge data can help companies to synthesize business, correlate and process this data to drive predictive analysis. Such companies’ deals investing in analytics that were announced this year include:

• US-based LiquidHub Inc acquired Gurgaon-based Annik Technology Services Private Limited to strengthen its presence in Data management and analytics space.

• Fractal Analytics attracted large investment of US$100 million from Khazanah Nasional Berhad, the strategic investment fund of the Government of Malaysia, during the year to expand its analytics offerings.

• Nihilent Technologies Limited acquired ICRA Techno Analytics for US$10 million to expand its expertise in analytics, data engineering, and business process management.

2014 2015 2016

Number of deals

Domestic 37 46 44

Inbound 39 35 29

Outbound 22 34 33

Total 98 115 106


Domestic 679 95 227

Inbound 1,086 462 461

Outbound 211 841 1,395

Total 1,976 1,398 2,083


• Infosys Limited bought an undisclosed minority stake in the US-based Waterline Data Science Inc. for US$4 million.

• L&T Infotech acquired AugmentIQ Data Sciences Private Limited, a start-up offering IP-based, big data and analytics solutions.


Exhibit 16: M&A deals in the technology sector

1,976 1,398

2,083 98

115 106

0

40

80

120

160

0

1,000

2,000

3,000

4,000

2014 2015 2016

Num

ber

of d

eals

US$

mill

ion



OutlookDeal activity to remain positive as players seek to innovate and grow in the digital worldSMAC technologies will continue to drive the growth of Indian IT Industry. Given the benefits of SMAC, large cash-rich players will likely keep scouting for targets specializing in SMAC to gain intellectual property, talent pool and add emerging technologies to their portfolio of traditional services. In addition to SMAC, we will also see more deal activity in the areas of IOT as the world moves to more connected devices including cars and also consumer goods etc.

Deals in the IT services sector may get clouded by adverse visa policy of the new US government as that will increase the cost and affect competitiveness of Indian companies. Nevertheless, financial and strategic investors will continue to focus on SMAC companies as the global IT spend increase in this segment. There will be more emphasis on platform based technology companies as the world moves to the cloud and SAAS based models. At the same time, there has been a heightened interest among PE players to look at the majority buyouts as compared to traditional minority plays. We expect that PE will continue to remain aggressive in the services segment as it provides scale plays as compared to SMAC. Furthermore, digital disruption is only going to evolve even faster in the times ahead. The growth forecast looks positive, with the government adopting several initiatives, including Digital India and Smart Cities, to promote the push towards digitalization.


India’s M&A to stay strongThe ongoing momentum in M&A activity is expected to continue as we progress through 2017, notwithstanding the short-term drag that demonetization could exert on the economy. The M&A environment in the country remains conducive on the back of a strong long-term economic outlook and healthy capital markets. At the same time, easing of credit situation, along with the government’s thrust on the country’s infrastructure will provide a boost to the capex cycle, thereby resulting in higher private investments. In addition, once the impact from demonetization stabilizes, a gradual recovery in domestic demand along with steady progress on reforms, such as GST and Minimum Alternate Tax, should boost corporate earnings and help businesses to create a war chest for inorganic growth.

Domestic activity is expected to remain robust. With scale expansion becoming a critical element of Indian corporates’ strategy agenda, consolidation deals are likely to gain

further strength across sectors. We could also see big-ticket divestments by debt-laden companies, especially in capital-intensive sectors such as power, cement, real estate and telecom among others, as banks take a stringent view on non-performing assets. In addition, the market will see an extensive focus on deals/strategic alliance/partnerships to build technological capabilities and gain a competitive edge through online/mobile presence, data analytics competencies etc., as new technologies continue to disrupt businesses across industries. In particular, the financial services sector is likely to see major action in the digital space as the economy transitions towards the cashless model.

Outbound investments will continue to be led by the oil and gas sector in the next year as well. India’s quest to secure supplies of natural resources is expected to gather pace, with the government taking steps to encourage Indian players to acquire oil, gas and coal assets overseas. Furthermore, the ample availability of deep-value assets at attractive prices, amid global

M&A outlook


economic uncertainty and low crude oil prices, will also help Indian oil and gas companies to close acquisitions.

The pharmaceuticals and technology sectors are also expected to be quite active on the outbound front as companies look to build high-end technical capabilities, expand service/products portfolios and strengthen market position. Pharmaceutical companies are also looking to gain access to newer markets such as Japan, Africa and CIS, through acquisitions as the pace of growth slows in the traditional exports markets. Moreover, markets like Japan provide a huge opportunity for Indian players due to significant patent expiration expected over the next couple of years and a low generics penetration.

Inbound activity, which saw strong traction in 2016, should carry the momentum in the current year. While global buyers are expected to be selective, owing to policy uncertainty in the US and stressed economic environment in Europe, their interest in Indian businesses will remain alive as they look for

growth opportunities outside the US and Europe. The Finance Minister in the Union Budget FY17-18 cited an FDI increase of 36% over the previous year, indicating that overseas investors are responding to the positive outlook on India. An emphasis on ease of doing business continues, evidenced by the proposal to abolish the FIPB and further liberalize the FDI policy. The efforts of the government are consistent to provide certainty, clarity and a fillip to inbound investment.

Trends that drove an increase in deal value, anchored on large transactions and consolidation across several sectors, are expected to stay strong. The year 2017 is likely to witness an increase in stock deals between listed and private companies, largely to provide exit opportunities to shareholders, as there are a limited number of acquirers willing to evaluate all-cash deals. Furthermore, it also helps manage value expectations between transacting shareholders. Overall, 2017 looks quite promising with regard to domestic, outbound as well as inbound deals.



Exhibit 17: Quarterly deal activity

4.0 6.47.5

12.1 12.9

7.6

13.9 21.8

197 209 248 233

253 223 229

162

0

100

200

300

0

10

20

30

40

Jan-Mar 15 Apr-Jun 15 Jul-Sep 15 Oct-Dec 15 Jan-Mar 16 Apr-Jun 16 Jul-Sep 16 Oct-Dec 16

Num

ber o

f dea

ls

US$

bill

ion

Deal value (US$ billion) Number of deals

Appendices


Geography Month Target Target Country

Acquiror Acquiror Country

Value (US$ million)

Target Sector

Inbound Oct Essar Oil Limited (including Vadinar refinery)

India Trafigura Holding BV, Rosneftegaz

Netherlands, Russia

12,907 Oil and gas

Outbound Mar Taas-Yuryakh Neftegazodobycha OOO, Vankorneft’ AO

Russia Investor Group (Oil India Limited, Bharat Petroleum Corporation Limited and Indian Oil Corporation)

India 3,262 Oil and gas

Domestic Aug Max Financial Services Limited - Life Insurance business

India Housing Development Finance Corporation Limited

India 3,194 Insurance

Domestic Feb Jaiprakash Associates Limited - Cement Units (6)

India UltraTech Cement Limited

India 2,424 Cement and building products

Outbound Mar Vankorneft’ AO Russia Oil & Natural Gas Corporation Limited


Domestic Jul Lafarge India Private Limited

India Nirma Limited India 1,400 Cement and building products

Domestic Jun Welspun Renewables Energy Privated Limited

India Tata Sons Limited India 1,382 Infrastructure

Inbound Jul Gland Pharma Limited India Shanghai Fosun Pharmaceutical (Group) Company Limited

China 1,260 Pharmaceuticals

Domestic Oct Krishna Godavari Oil Field

India Oil & Natural Gas Corporation Limited


Domestic Nov Videocon d2h Limited India Dish TV India Limited India 1,186 Media and entertainment

Exhibit 18: Top 10 deals of 2016



Taget vertical2015 2016

Deal count Deal value (US$ million)

Deal count Deal value (US$ million)

Aerospace and defense 6 280 5 325

Agriculture 12 598 11 700

Automotives 28 557 27 76

Cement and building products 14 1,154 17 5,239

Chemicals 27 255 30 420

Diversified industrial products 80 728 56 806

Education 17 31 18 12

Financial services 75 2,687 91 7,297

Healthcare 30 482 32 1,177

Infrastructure 93 2,273 92 4,041

Investment companies 9 200 4 42

Media and entertainment 56 1,226 56 1,801

Metals and mining 25 721 26 2,166

Oil and gas 9 2,175 18 19,615

Paper and forest products 4 512 7 66

Pharmaceuticals 53 3,116 51 4,557

Professional services 53 196 62 261

Real estate 45 723 29 785

Retail and consumer products 97 2,415 80 635

Technology 115 1,398 106 2,083

Telecommunications 16 7,895 19 2,424

Textiles 6 37 15 117

Travel services 16 361 14 1,542

Miscellaneous – – 1 –


Exhibit 19: Deal activity by industry

35Transactions 2017: Inbound M&A takes centerstage | 35

Transaction Annual is based on EY’s analysis of Thomson ONE’s M&A data• The data compiled is for the period 1 January 2016 to 31

December 2016. The report highlights announced deals and indicates their status — either pending or completed. Terminated deals have been excluded from it.

• Data was obtained from Thomson ONE through an “M&A” customized search, where India was either a target or seller or an acquirer.

• Deal values have been taken as indicated in Thomson ONE (accessed February 2017). All the amounts are in US dollars (unless otherwise stated). The conversion rate of non-US dollar deals is in accordance with Thomson ONE guidelines; foreign exchange rates are in accordance with deal announcement dates.

• Instances of multiple deals involving mandatory open offers, stake acquisitions in tranches or mergers have been combined into a single deal.

• The deals extracted have been classified for analysis on the following basis:

• Industries based on EY’s sector classification.

• Inbound, outbound and domestic based on the target/ acquirer countries.

• Deal size brackets based on announced deal values.

• The numbers have been rounded off where otherwise indicated.

• Total disclosed value of the deals does not include the acquired debt of the targets.

Methodology


Notes


Connect with us

Kuljit Singh Partner – Infrastructure, Power and Debt

M&A advisory Email id: [email protected]

Office: +91 11 43633110

Amit Khandelwal National Director

Transaction Advisory Services Email id: [email protected]

Office: +91 120 6717180

Ajay Arora Partner and Leader - M&A Advisory


Office: +91 22 61920110

Ranjan Biswas Partner and National Leader – Technology,

Communication and Entertainment Email id: [email protected]

Office: +91 806 7275131

Sailesh Rao Partner – Corporate Finance Services

Email id: [email protected] Office: +91 8067275132

Mayank Rastogi Partner - Private Equity Desk


Office: +91 22 61920850


Our offices

Ahmedabad2nd floor, Shivalik IshaanNear C.N. VidhyalayaAmbawadiAhmedabad - 380 015Tel: + 91 79 6608 3800Fax: + 91 79 6608 3900

Bengaluru6th, 12th & 13th floor“UB City”, Canberra BlockNo.24 Vittal Mallya RoadBengaluru - 560 001Tel: + 91 80 4027 5000 + 91 80 6727 5000 + 91 80 2224 0696Fax: + 91 80 2210 6000

Ground Floor, ‘A’ wingDivyasree Chambers# 11, O’Shaughnessy RoadLangford GardensBengaluru - 560 025Tel: +91 80 6727 5000Fax: +91 80 2222 9914

Chandigarh1st Floor, SCO: 166-167Sector 9-C, Madhya MargChandigarh - 160 009 Tel: +91 172 331 7800Fax: +91 172 331 7888

ChennaiTidel Park, 6th & 7th Floor A Block (Module 601,701-702)No.4, Rajiv Gandhi Salai Taramani, Chennai - 600 113Tel: + 91 44 6654 8100 Fax: + 91 44 2254 0120

Delhi NCRGolf View Corporate Tower BSector 42, Sector RoadGurgaon - 122 002Tel: + 91 124 464 4000Fax: + 91 124 464 4050

3rd & 6th Floor, Worldmark-1IGI Airport Hospitality DistrictAerocity, New Delhi - 110 037Tel: + 91 11 6671 8000Fax + 91 11 6671 9999

4th & 5th Floor, Plot No 2B Tower 2, Sector 126 NOIDA - 201 304Gautam Budh Nagar, U.P.Tel: + 91 120 671 7000Fax: + 91 120 671 7171

HyderabadOval Office, 18, iLabs CentreHitech City, MadhapurHyderabad - 500 081Tel: + 91 40 6736 2000Fax: + 91 40 6736 2200

Jamshedpur1st Floor, Shantiniketan BuildingHolding No. 1, SB Shop AreaBistupur, Jamshedpur – 831 001Tel: +91 657 663 1000BSNL: +91 657 223 0441

Kochi9th Floor, ABAD NucleusNH-49, Maradu POKochi - 682 304Tel: + 91 484 304 4000Fax: + 91 484 270 5393

Kolkata22 Camac Street3rd Floor, Block ‘C’Kolkata - 700 016Tel: + 91 33 6615 3400Fax: + 91 33 2281 7750

Mumbai14th Floor, The Ruby29 Senapati Bapat MargDadar (W), Mumbai - 400 028Tel: + 91 22 6192 0000Fax: + 91 22 6192 1000

5th Floor, Block B-2Nirlon Knowledge ParkOff. Western Express HighwayGoregaon (E)Mumbai - 400 063Tel: + 91 22 6192 0000Fax: + 91 22 6192 3000

PuneC-401, 4th floorPanchshil Tech ParkYerwada (Near Don Bosco School)Pune - 411 006Tel: + 91 20 6603 6000Fax: + 91 20 6601 5900

About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

Ernst & Young LLP is one of the Indian client serving member firms of EYGM Limited. For more information about our organization, please visit www.ey.com/in.

Ernst & Young LLP is a Limited Liability Partnership, registered under the Limited Liability Partnership Act, 2008 in India, having its registered office at 22 Camac Street, 3rd Floor, Block C, Kolkata - 700016

© 2017 Ernst & Young LLP. Published in India. All Rights Reserved.

EYIN1703-027 ED None

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young LLP nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

JG

Ernst & Young LLPEY | Assurance | Tax | Transactions | Advisory

ey.com/in

@EY_India EY|LinkedIn EY India EY India careers

EY refers to the global organization, and/or one or more of the independent member firms of Ernst & Young Global Limited

Transactions 2017 - EYFILE/ey... · Transactions 2017: Inbound M&A takes centerstage | 3 Over the...

Documents

Transcript of Transactions 2017 - EYFILE/ey... · Transactions 2017: Inbound M&A takes centerstage | 3 Over the...