Big-ticket deals, new IPOs boost M&As in 2016

Calendar year 2016 has been a happy one for rainmakers with the volume and value of mergers and acquisitions (M&A) deals trending upwards compared with 2015.

Deal-making in 2015 was largely driven by private equity (PE) players looking to exit their investments in portfolio companies, a number of such companies going public, and a few big-ticket transactions involving large business groups.

“While M&A activity in India perked up in 2016 thanks to a few multi-billion-dollar deals that companies struck either to slash debt or consolidate their market share, what we are seeing is the flow of angel / seed money into enterprises in sectors like fintech, health care, education and travel which will continue into 2017,” says Nita Kapoor, head, India New Ventures, News Corp and CEO, News Corp VCCircle. “There is a huge funding opportunity for startups operating in these sectors that succeed in delivering a good consumer experience.”

According to the Annual Deals Report for CY2016, released by News Corp VCCEdge on Wednesday, 1,002 M&A deals were recorded in 2016 with an aggregate value of $61.44 billion. M&A activity in the previous year, in value terms, was the highest in five years and a massive 159 percent jump over 2015.

Some of the big-ticket deals that fuelled this growth in overall deals activity include the Essar Group’s $13-billion sale of Essar Oil to Russian energy company, Rosneft; the merger of the Max Group’s life insurance business Life Insurance with HDFC Life Insurance (the deal is yet to receive regulatory clearances); and the divestment of Reliance Communication’s telecom towers assets to Brookfield Asset Management. These three deals alone were worth $27.7 billion.

For PE investors, 2016 was a year more for exits than fresh investments. These investors exited investments to unlock wealth to the tune of $6.79 billion, across 236 exits during the year. This was the highest level of PE exits witnessed in the last five years, and represented a 17 percent year-on-year increase in exits (in value terms). One of the reasons for PE funds making a beeline for exits was a rebound in the capital markets that allowed them to liquidate their holdings after a long time (during which there was a slump on the bourses). Initial public offerings (IPO) in 2016 touched a five-year high as 93 companies raised as much as $4.12 billion, almost double of what they did in 2015.

The enthusiasm exhibited in monetising existing investments wasn’t matched when it came to committing fresh capital as the total value of PE transactions slumped by 44 percent to around $12.38 billion, down from $22.01 billion in 2015.

Startups operating in new-age businesses such as financial technologies and data analytics continued to attract funding from angel and seed investors, who contributed 57 percent of the total PE investments in 2016. They accounted for 748 deals amounting to $324 million.