India dealmaking reaches record $112.8 billion in 2021, to remain strong in 2022

India’s 2022 deal pipeline is expected to remain strong as India is likely to remain shielded from current geopolitical events, according to White & Case lawyer Sayak Maity.
India dealmaking reaches record $112.8 billion in 2021, to remain strong in 2022

A version of this article was first published on FinanceAsia.

Strong inbound and domestic investment activity contributed to deal activity India reaching new highs last year. The South Asian nation saw 598 deals with a total value of $112.8 billion in 2021, according to new analysis by law firm, White & Case. The figures represent a new record for the market by both deal volume and count.

“One key factor [behind foreign investor interest in India] is demographics: India has a young population which, unlike certain Western countries with ageing populations, doesn’t drain the state’s resources,” said Sayak Maity, Singapore-based partner within White & Case’s the Mergers & Acquisitions and Private Equity practice group, in an interview FinanceAsia.

“The size of the market is always going to be a key attraction for inbound investments as well,” he added.

“Finally, India has built a consistent track record of FDI (foreign direct investment) coming in and exiting over the past ten or 15 years, and that makes the large PE (private equity) firms and investors more comfortable investing there.”

Domestically, large Indian entities have benefitted from the country’s sustained low interest rates. The Reserve Bank of India (RBI) has maintained its repo rate (the rate at which it lends to banks) at 4% since cutting it by 40 basis points in May 2020. The deployment of excess cash on balance sheets is also reflected in the dealmaking numbers, Maity explained.

TMT leads the way

The report showed last year’s Indian deal activity to be driven largely by the technology, media, and telecom (TMT) sector, as was the case in other regions.

The number of TMT deals last year totalled 210, up from 108 in 2020, and deal value hit $37.6 billion, up from $30.8 billion – just below the $36.79 billion record reached in 2018. The largest TMT transaction last year was the $4.7 billion acquisition of payment gateway, Billdesk by Netherlands-based fintech, PayU.

TMT M&A activity deal value 2006-2021. Source: White & Case

The consolidation of large players in India’s media sector, coupled with continuously rising tech valuations across the globe, are contributing factors, Maity said. He expects strong deal activity to continue in TMT, as well as in pharmaceuticals and healthcare – sectors that have been propelled by the ongoing Covid-19 pandemic.

On whether the current crisis in Ukraine could impact Indian dealmaking activity in 2022, Maity highlighted a lack of direct connections between the Ukraine conflict and India in a geopolitical sense, but noted that India is a net importer of crude oil.

As a result, rising oil prices, coupled with a strong dollar, are likely to hit the Indian economy, he said. “I think that’s foremost in the mind of the Indian Government right now from a macroeconomic perspective in connection with the Ukraine conflict.”

Record buyout activity

PE activity was also at an all-time high last year, with Blackstone and Carlyle Group’s respective purchases of stakes in IT firms Mphasis ($3.2 billion) and Hexaware Technology ($3 billion) among the most notable deals.

Large PE firms with buyout and growth funds were particularly active. While these did not raise India-specific funds, their allocation to India continues to grow in line with the overall targets of Asia-focussed funds. Investor exposure to Asia Pacific private markets has grown over 600% over the past decade, according to data by Preqin.

Additionally, Maity pointed to a shift in investor focus towards India and away from China following regulatory crackdowns last year and persistent US-China tensions.

“A lot of funds were overweight on China and I think they've realigned their portfolio exposure to India over the last two years. In the immediate future at least, there is likely to be increased activity in India as compared to China,” Maity said.

Such sentiment also appears to be impacting listings, with research by GlobalData showing that China’s share in the global TMT IPO market fell by 9% in 2021, while India’s TMT IPO market is getting stronger.

Finally, acquisitions of Indian companies by foreign special purpose acquisition companies (SPACs) may contribute to India’s dealmaking pipeline in 2022, but the pool of potential de-SPAC targets in India is limited by restrictions under foreign exchange regulations and tax laws, Maity said.

For example, under so-called “roundtripping restrictions”, Indian residents may not hold shares of Indian entities through overseas vehicles, such as foreign-listed SPACs.

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