M&A activity in India to accelerate as cheap assets flood market: Mahesh Singhi

by / Thursday, 01 September 2016 / Published in News & Updates

As deal activity and the mergers and acquisitions heat up, investment bankers are in for exciting times, says Mahesh Singhi, Managing Director of Singhi Advisors.

Singhi Advisors is aninvestment banking firm, focused on providing merger, acquisition, divestiture and corporate advisory services to domestic and international companies. With a team of 40 professionals, working across different offices in India and Australia, Singhi Advisors claims to have exclusively advised over 100 transactions valued over $4.2bn in the recent past, covering 18 sectors, across 20 countries.

In an interview to DEALSTREETASIA, Singhi talks about the impact of the regulatory reforms on the M&A activity and how this space is expected to grow in the next few years.

Edited Excerpts:

How do you view the current investment climate in the country?

With relaxations in FDI norms in several key economic sectors, inflationary pressures under control and a strong impetus on infrastructure development with the roll-out of the “Smart Cities’ initiatives and other big-ticket infra projects given the go-ahead, the investment cycle in the country is in a revival mode. The government has also initiated several investment –friendly policies like the passage of the Bankruptcy and Insolvency Bill to accelerate the pace of insolvency proceedings for sick companies. With a stronger-than predicted monsoon buoying economic sentiments and India’s GDP expected to clock a healthy growth rate of 7.4% amid a gloomy global economic environment, a significant uptick is foreseen in investment activity across diverse sectors of the economy.

How has the M&A activity evolved in the last couple of years?

With the government taking time-bound measures to control domestic inflation and the easing of FDI norms in key economic sectors, M&A deal activity in inbound and domestic M&A and from a PE perspective across different sectors is set to scale up in the days to come. Though 2015 started on a bang with 236 per cent rise in M&A deals in the first three months of the year, investor sentiments fizzled out in the later part of the year with the M&A deal tally declining to 18% with a sharp fall in deals in the e-commerce and core manufacturing sector.

Which are the countries that are showing more interest in Indian companies?

There have been large-scale cross-border M&A investments from Russia, Singapore, Japan, US and UK. The strengthening of the US dollar and a robust credit market has galvanized US investors into making big-ticket cross border acquisitions. With 10 inbound deals and prospects for 15 outbound M&A deals in Q1, 2016, the world’s largest economy has emerged as an aggressive bidder in the Indian M&A space. Investors from Singapore have also evinced a keen interest in acquiring Indian assets with 5 inbound M&A transactions and 4 prospective outbound transactions.

What sectors do you think are going to see increased M&A or investment activity in the next couple of years?

Any sector which possesses the power to cause disruption in the working of conventional sectors through modern business practices and technical innovations will prove to be prospectively attractive for M&A investors. Sunshine sectors which are expected to see significant flow of funds in the future include biotechnology, media and entertainment , IT and ITES, healthcare, and telecom.

What kind of impact has the increased investment and M&A activity in the country had on advisors like you?

The space is getting more and more exciting for home grown firms like us who have been able to upscale themselves and remained relevant with the changing market dynamics. With the knowledge we have gained over the years in our ability to screen, filter and choose a correct match for overseas players entering India through M&A, the deal flow has increased substantially, though the time to close a deal has also increased with time, since incoming investors have become quite cautious and choosy now.

How do you view competition in the advisory space?

The gap between ‘men & boys’ is quite visible now. One has to play based on their strength instead of waiting for market conditions to support them. At the top of pyramid, firms with specialised skills are all gaining and the bottom ballon is fighting to survive. Time to be lean but effective.

How do you view the next two years for investment and M&A activity in the country?

With increasing pressure from lenders on debt-ridden companies to put their assets on the block, the domestic M&A space is expected to be dumped with assets at cheap price points, going ahead. With companies scurrying to divest their non-core assets for deleveraging their loan books, heightened activity is foreseen in domestic M&A deals with buyers flocking the markets to acquire the cheaply priced assets. Buyers would give preference to assets in real estate, metal and infrastructure sector viz. power, steel, roads, airports and commercial buildings, having the potential to generate attractive returns with changing business cycles. With M&A sentiment remaining largely muted on a global level, especially in the Asia-Pacific region, India is likely to remain at the fulcrum of global M&A activity for the next two years.

Do you also foresee a lot of domestic M&As or are they likely to be international?

India clocked an aggregate concluded M&A deal value of $7.8 billion in Q1 of 2016, a rise of 63% as compared to the first three months of 2015. Domestic M&A investments dominated the overall deal value in the first quarter of 2016 with 149 deals at a concluded value of $5.2 million out of a total 245 deals. There was a 27% rise in the domestic M&A transactions in Q1, 2016 as compared to the same period last year. With companies offloading their non-essential assets to clean their loan books, domestic M&A activity is likely to see an acceleration with an influx of cheap assets flooding the markets. A rise in the growth momentum, transparent regulatory mechanisms and increased access to institutional capital, on the other hand, has proved to be the much-needed trigger for outbound M&A investments.