The decade which followed the early reforms in India post the 1990s, the colourful stories of larger-than-life bankers striking bulge-bracket mergers and acquisitions (M&As) deals emanated mostly from the Wall Street firms or their JV’s in India, Big5’s (Arthur Anderson was still leading the pack) and multinational Banks. Fuelled by increased capital flows and rising valuations, domestic M&As emerged as a preferred route for accelerating growth, achieving scale and consolidating market share in India in the early 2000s.
Clearly, M&As were one of those by-products of the epic economic reforms of 1991 that eased licence raj and opened the doors for intense competition. After the reforms were rolled out and many restrictive policies were rolled back into the annals of history, there was suddenly a perceptible appetite among the Indian companies to think big and spread the wings within and beyond the borders. That was the biggest trigger for Indian entrepreneurs to look outward for investment and it also created a new breed of crafty, suave and affable deal-makers.
Family business conglomerates, which established businesses and thrived even under stringent regulatory environment, were the first to sniff the opportunity to accelerate the pace of growth through M&As. Initially, with the motive to capture the readymade capacities in the expanding markets in India, domestic M&As took place in the textile, steel, cement, pharma and other core manufacturing industries dominated by these family-run groups.
Big companies took over cash-strapped smaller players to expand their base within the domestic market. Small players in steel, cement, pharma-chemicals, garments, etc, which struggled to grow in a liberalised environment, were taken over by the bigger player in the industry having access to financial capital and management bandwidth. Companies which restructured operations after getting mired in debts also opted for industry consolidation through mergers or acquisitions.
These heightened opportunities spawned the arrival of a few world-class investment bankers who showed the tenacity to strike big deals. These global players who stitched up exciting deals set shop in India. They worked with big companies to spot opportunities and stitch deals.
Though the M&As were largely confined to family-owned companies till the end of the 1990s, the year 2000 and the dot-com boom marked the beginning of a complete realignment and opening of new sectors like IT, technology, telecom, BPOs and financial sector, which gave birth to new breed of advisors and investment bankers, who grew with the new age companies. This was when Indian economy went through cataclysmic changes and showed signs of rapid growth. Egged on by opportunities for growth, big companies also diversified into newer sectors and several new entrepreneurs, with a ferocious hunger for growth, fuelled by large flow of capital into these newer sector, emerged on the horizon.
This phase can be called the second wave of M&As. While top MNC bankers and home-grown biggies were vying for the large M&A pie, mid-size bankers emerged on the horizon for doing deals which came in the range of $10-100 million ticket size.
Between 2003 and 2007, India witnessed several bulge-bracket M&A transactions. But the most striking thing that happened was the acquisition of assets and natural resources (mining, oil & gas) by Indian companies abroad. India became the nerve-centre of cross-border acquisitions with billion-dollar assets being gobbled up by our manufacturing biggies owned by big conglomerates. It clearly showed our prowess, and Indians came to own some of the multinationals.
Multinational companies, that were looking to grab the market share in a growing economy like India, scaled up their presence through large acquisitions during this phase.
There was also an impact on the investment banking scenario. Even home-grown investment banks cashed out to multinationals. bankers came up with innovative models to restructure big family-owned groups and engineer smooth division of assets among family members.
Another factor that spurred M&As was the growing inflow of long term capital & private equity money. Between 2006 and 2010, $40-50 billion PE money played out in the Indian market which shaped the fortunes of mid-market bankers. Mid-sized bankers spotted opportunities among small and medium-sized entrepreneurs where the big players did not have a direct connect. Today, four or five mid-size bankers together do deals worth $2 billion a year, which sums up the evolution of investment-banking industry in India.
The third phase started immediately after the slowdown in 2008 when companies, strangled by huge debts, decided to sell distress assets. Buoyed by the opportunities, several multinationals and large Indian corporate houses bought distress or under-performing assets in India. Going by the sectors, technology, consumer, pharma and healthcare also emerged as a major area for M&A activities after 2008 as the recession-proof industry strived for consolidation.
M&As, which have become a major engine of economic growth over the last 25 years, continue to grow at hectic pace. India’s fledgling e-commerce ecosystem will see some heightened activity in the future. We are already seeing mergers in this sector. Start-ups, which will grow to achieve size and stature, will witness consolidation. Indian pharma biggies could do billion-dollar acquisitions abroad. It’s time for a new beginning that will set the tone for another 25 years.
The author is Mahesh Singhi, founder & MD, Singhi Advisors.Views are personal