Pause and Consolidation : PwC India Mid-year Deals Outlook

Mumbai, 21st July 2020: PwC India’s report on Deals in India (Mid-year Review & Outlook for 2020) highlights how a slowing deal environment has been further impacted by Covid-19. Deal value across both private equity (PE) and strategic (mergers and acquisitions [M&A]) deals amounted to USD 38.4 billion across 576 deals, a 14% decline compared to the same period last year.

Inbound activity retained momentum, visible from the sizable bets placed by foreign investors in India. Disruptions in global supply-chains could create an opportunity for India’s manufacturing space, particularly micro, small and medium enterprises (MSMEs). Simultaneously, consolidation continues to drive deal activity and is likely to continue with a number of businesses being burdened with cash-flow challenges. This could spur interest from distressed funds and strategic players looking to acquire assets at attractive valuations.

The report also mentions that while Buyouts appear to be slowing down in comparison to 2019, control would remain a key element for investors in the current situation and we could see investments of this type pick up over the rest of the year. Venture Capital (VC) backed start-ups have been coping with a number of challenges while VCs themselves have been focused on the performance of their portfolio companies. Border tensions coupled with changes in foreign direct investment (FDI) regulations, could present another challenge for the start-up space, deterring investments from big-ticket Chinese investors.

While select Sovereign Wealth Funds (SWFs) and Pension Funds have placed investment plans on hold, others have been part of large investments over the last few months. From a sector perspective, telecom, technology, energy, real estate and financial services attracted maximum interest. The impact of COVID-19  has caused a realignment of priorities, drawing renewed attention to sectors like education, healthcare and pharmaceuticals, including medical research. We could expect investor interest in these sectors to pick up. PE exits witnessed a noteworthy decline amidst market volatility. Exit activity levels could remain muted this year till there is some form of recovery in asset prices.

While investment activity currently appears to be in a slump, deal levels would eventually pick up with investors tapping into opportunities emerging from the COVID-19 crisis.

Sanjeev Krishan, Chairperson, PwC in India said, “Uncertainty appears to be the underlying theme for 2020. Despite the current environment, India is viewed as a key investment destination, evident through the high value deals over the last few months. While we are trying to cope with a highly dynamic situation, the overall construct of doing deals is going through a change and the focus is shifting towards value creation and enhancement.

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