Deal street dazzles with Reliance deals; brighter days ahead in 2021

Pharma, technology & Internet sectors saw maximum M&As during the year

Mumbai: Record equity divestment by the Reliance Group in its telecom and retail businesses garnering around $23 billion revved up the deal street in 2020, which otherwise would have gone down as one of the dullest on record, and dealmakers are seeing sunnier days in 2021 given the large scope for consolidation in a slew of sectors ravaged by the pandemic.

With Jio Platforms alone garnering over $16 billion (Rs 1,18,318 crore) by selling 25.24 per cent stake and Reliance Retail notching up $6.4 billion (Rs 47,265 crore) by divesting around 9 per cent shareholding, the deal street signed off with $85 billion in the deal kitty across 1,270 transactions. This is higher by about 10 per cent over 2019.

What is significant is that over a third of the total deal value came from Reliance transactions, say investment bankers. While Jio attracted FDI/PE (Private Equity) dollars worth over $16 billion in investments led by Facebook, Reliance Retail fetched over $6.4 billion in forex funds during the year. All other FDIs (Foreign Direct Investments) put together totalled only $3.2 billion, according to a PwC India tabulation. Pharma, technology and Internet sectors saw maximum M&As (Mergers & Acquisitions) during the year, as per Citi India.

"Overall, M&As over $85 billion were announced in 2020, led by Reliance, which raised growth capital for Jio and Reliance Retail from several global companies and sovereign wealth funds," Ravi Kapoor, Head of Corporate and Investment Banking at Citi India told PTI. Ajay Arora, Partner and National Leader of Investment Banking at EY India said H1 of this year saw a major decline in M&As but H2 witnessed a strong bounce back when deals rose nearly 40 per cent over the first six months.

"I expect this strong momentum to continue in 2021, primarily driven by the significant appetite of PEs for buyouts and an uptick in inbound deals due to the revival in interest from global players. Sectors like technology, e-commerce, including consumer tech, health tech and edtech in particular, and renewables and life sciences will see majority of M&As in 2021," Arora told PTI. Kapoor said India is a strong long-term growth story.

"Abundant liquidity, a strong appetite from sponsors and potential consolidation themes are likely to drive M&As in 2021, and multinationals seek to expand their supply chains to better absorb shocks going forward," he added. Mahesh Singhi, Founder of mid-market i-bank Singhi Advisors, is also quite bullish about next year.

"We expect speciality chemicals, pharma, chemicals, building materials, medical devices, auto components and consumables space, apart from distress M&As happening in 2021," he told PTI. Sanjeev Krishan, Partner and Leader of Deals at PwC India, said M&As accounted for over 50 per cent of $80 billion in 2020 while PE inflows kept pace with last year at $38.2 billion. Excluding the big-ticket deals by Jio, H1 saw a deep slowdown with investors putting their plans on hold and shifting focus towards cash conservation, Kirshan said.

He also noted the narrative changed when Jio announced a string of deals from April through July snapping up over $16 billion, including $5.7 billion from Facebook alone. The only domestic deal worth writing about was Reliance Retail buying the retail, wholesale, logistics and warehousing businesses of Future Group for $3.3 billion.

Another trend was consolidation driving M&As, accounting for nearly 50 per cent of value and given the volatility and uncertainty of the current times, this is expected to a continuing trend, Krishan said. Over three quarters, $13.4 billion was invested in Jio alone with the Facebook deal of $5.7 billion being the largest one. This was followed by $4.5 billion investment by Google for 7.7 per cent in Jio. Expectations exceeded on the PE front as $38.2 billion came in 2020, amounting to nearly the same level of activity in 2019. Reliance was once again a large contributor to PE deals. (PTI)