During these uncertain times, social distancing norms continue to burden businesses and the limited manpower requirements have halted the production bandwagon. Even during these uncertain times, deal making is again on the rise, and private equity players are on the lookout for an opportunity to earn outsized returns resulting from low valuations1.
2020 registered 812 Private Equity (PE) investments worth about $39.2bn. The largest PE investment announced was $9.9 Billion investment in Jio Platforms. The largest Venture Capital2 (VC) type investments were $20 million investments in Flexiloans, Freshtohome, iMerit Technology Services.
Super angels and Angel networks further pushed the market by investing in 341 projects (up from 275 in 2019). largest investment involving angel investors was the $110 million Series E investment in Bangalore-based Education startup Unacademy. alternatives to “traditional” M&A—will be an important lever as businesses recover and thrive in the post–COVID-19 – Deloitte Report on M&A.
Sectors, including manufacturing, infrastructure, financial services and real estate, faced significant challenges in the pre-Covid era because of the mounting bad debts and a growing sense of reluctance within the lending and banking communities3
In the interest of recovery, assets across these sectors will garner keen interest and careful observation. Special situation funds or distressed funds have already enhanced their operations in India. A number of funds are already allocating capital towards distressed situations.
With $73.6 billion worth inbound deals, M&A value last year was way below the all-time high it scaled in 2018 at $132.2 billion and up from 2017 when it was at a low $58.3 billion. The numbers would have been much lower had it not been for the deals by Reliance -$16 billion into Jio and over $6.4 billion into Reliance Retail.
The Government of India have taken significant initiatives to strengthen the economic credentials of the country and make it one of the strongest economies in the world. India is fast becoming home to start-ups focused on high growth areas such as mobility, E-commerce, and other vertical specific solutions
Expectations exceeded on the PE front as investments worth $38.2 billion were recorded in 2020, amounting to nearly the same level of activity in 2019. Reliance Group was once again a large contributor to PE deal values and helped in retaining momentum with PE investments in 2019.
Indian businesses are essentially – as of now – left to fend for themselves in relation to the impact of this virus. This will affect valuations and provided there is a willing seller or investee company, opportunistic buyers should still be able to find deals.
In some cases, stakeholders are actively pursuing a sale of the business entity given the uncertainty of a positive business outlook in the near future. Typically, sellers will provide representations and warranties to the acquirer in relation to the shares, the business and the entity. This will ensure that if any claim arises in the future, the acquirer can directly claim from the insurance company. This will ensure that if any claim arises in the future, the acquirer can directly claim from the insurance company
During the COVID-19 pandemic, the stringent lockdown in India makes the new start-ups and MSMEs (Micro, Small and Medium Enterprises) more vulnerable as they are suffering from fund crunch. The government has taken a precautionary measure against anticipated opportunistic takeovers/ acquisitions of Indian firms by Chinese companies.
In last six years, FDI inflow from China to India is approximately $2031.12 million. With effect from 22 April 2020, foreign direct investment (FDI) from countries sharing a land border with India (Afghanistan, Bangladesh, Bhutan, China, Myanmar, Nepal, and Pakistan) have been placed entirely under the ‘Government Route'.
China has retaliated on this decision by expressing it as “discriminatory”.
3 https://www.pwc.in/assets/pdfs/services/deals/deals-in-india-annual-review-and-outlook-for-2021.pdf.
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