M&A deals in India see robust growth despite bad times for global dealmakers

It has been a trying time for deal makers. Rising interest rates, surging inflation and war in Europe have given global dealmakers a bad time. Worldwide, mergers and acquisitions totalled $3.6 trillion in 2022, down 38.8 per cent from 2021's record-smashing $5.9 trillion. Compare 2022 with the pre-pandemic five-year average (2015-19) - before the easy-money policies following Covid's onset supercharged dealmaking in 2H20 and 2021 - then deal value this year is 9.3 per cent lower.

Activity has plunged in the months since May, as the drumbeat of recession around the world became louder. Between the first and second halves of 2022, deal volume fell 40 per cent to $1.364 trillion in 2H22 from $2.256 trillion in 1H22. The number of deals also shrank 33.5 per cent to 14,369 over the same time frame, the least active second half since 2003.

Merger and acquisition (M&A) activity globally fell well short of the high-water mark set last year as debt financing markets collapsed and stock market volatility decimated valuations, with dealmakers predicting a slow path to recovery in 2023.

The total value of M&A had fallen 37 per cent to $3.66 trillion by December 20, according to Dealogic data, after hitting an all-time high of $5.9 trillion last year.

Investment bankers and deals lawyers said the activity levels of 2021 were unsustainable and that a correction was inevitable, but blamed macroeconomic uncertainty for hampering several potential tie-ups in the latter half of 2022.

If 2022's fourth quarter is anything like its third, then 2022 may struggle to beat pandemic-ravaged 2020's tally of $3.6 trillion. For the first nine months of 2022, global transactions reached $2.97 trillion - about a third down from the same period during 2021's record year and roughly level with the comparable period in pre-pandemic 2019.

Global dealmaking in 3Q22 dropped to $722 billion - a 54 per cent decline from a year earlier and 38 per cent down sequentially from 2Q22. The 6,916 transactions in 3Q22 were also 32 per cent lower year-on-year and 26 per cent down sequentially. It makes 3Q22 the worst quarter since 2Q20, when the start of the pandemic halted dealmaking.

The 3Q22 slowdown affected all regions. North America fared worst, with M&A plunging by 63 per cent year-on-year to $273 billion as summertime hopes of a stock market rebound ebbed when the Federal Reserve doubled down on monetary tightening to tamp stubborn inflation. Europe's fell by 41 per cent to $207 billion over the same period as an energy crisis roiled the continent. Asia-Pacific fell by 51 per cent to $192 billion as China's zero-Covid policy gummed up supply chains and a real estate crisis threatened its economy.

M&A deals in India soared to $126.09 billion across 1,185 deals in 2022. However, the growth rate - at 141 per cent - was largely due to the HDFC Bank and Housing Development Finance Corporation merger which was worth $57 billion. The deal size, the biggest in India's corporate history, was higher than the total value of all deals - $52.31 - in 2021.

This was followed by Adani Group's acquisition of Switzerland-based Holcim Group's entire stake in two Indian firms - Ambuja Cements and ACC - for about $10.5 billion, which was also the largest-ever acquisition by Adani, and largest M&A transaction in Indian infrastructure and materials space. The merger of two Larsen & Toubro subsidiaries - L&T Infotech and Mindtree - with a $3.3 billion deal value came in third.

Steel maker ArcelorMittal's arm AM/NS India acquisition of two port assets and a power plant from the Essar Group for a net value of about $2.4 billion, and private lender Axis Bank's acquisition of Citibank's India consumer business for $1.6 billion in an all-cash deal among others topped the charts, according to Bloomberg data.

However, when considering acquisitions alone, the deal size fell to $2.8 billion in 2022, compared with $3.8 billion recorded in 2021, according data provided by Tracxn Technologies. There were 634 deals in 2022, compared with 541 during the year-ago period.

India had recorded over $82 billion pending and completed M&A deals in the second quarter of 2022, the highest amount on record, with the deals being were more than twice the previous record of $38.1 billion in the third quarter of 2019, according to data compiled by Bloomberg.

The deal momentum is expected to soar further in 2023, in line with the country's economic growth, even as the next wave of the Covid-19 pandemic should be watched, a sector analyst said. According to an earlier Morgan Stanley report, India is set to become the world's third-largest economy by 2027, surpassing Japan and Germany, due to the key investments the country has made in technology and energy.