By Robert Torio, Content Marketing Manager, APAC

According to Mergermarket, almost US$10bn has been raised with 81 IPOs in India so far, which is significantly more than what was reported in the entire calendar year of 2020 (US$7.5bn raised across 45 different listings). The sectors attracting the most interest have been healthcare and technology as they collectively raised US$1bn and US$1.7bn, respectively.

The Indian IPO market has been following a global trend, seen in the US and Europe. Despite the lower volume and value of listings, India has more or less followed the theme set in global markets that has been favorable towards tech and healthcare sectors. 

At the recent India Deal Momentum: IPO, Capital Raising and Tech Trends webinar hosted by Mergermarket and Datasite, our panel of experts examined the India story and presented the latest M&A outlook from the country. The panel consisted of:

• Vivek Soni, National Leader - Private Equity Services, EY India
• Punit Gupta, Senior Vice President, Strategy and M&A, Tata Consumer Products
• Nidhi Killawala, Partner, Khaitan & Co.  
• Gaurav Jain, Principal, Kaizenvest
• George Belcher, Head of India, Datasite

Surge in IPO activity

According to Gupta, 2021 is turning out to be a sort of watershed year for India as far as IPOs and M&As are concerned. Many startup companies have scaled up and in the last year have shown readiness for an IPO.

A lot of traditional equity is now available to startups due to a regulatory change. Jain explained that recent regulatory changes could now allow a company that is still not profitable to go for an IPO. This has opened opportunities for scaled-up companies and accelerated their IPO timelines by 3-5 years.

More than half of the participants at the webinar voted that high levels of dry powder and private equity will be the biggest driver of the M&A market in India in 2022. Low interest rates and high valuations ranked second and third, respectively, with around 20% of the audience vote.

Soni attributed the high amount of liquidity to the private equity funds deployed in India that are managed by non-Indian GPs. “Almost 82% of all the dollars in the year 2020 were managed by foreign GPs.”  Soni believes this suggests that the activity levels in India are closely aligned with trends in the US and Europe. 

Mantra for new-age companies: Digital capabilities, good governance, diversification

In terms of the most important success factor in M&A in 2022, participants at the webinar cast a resounding vote: 67% believe that strategy, identifying, and screening targets is going to be the most important determinant of success in dealmaking.

Soni agreed with the poll results and noted, “Identifying and screening investable targets is very important and increasingly, a lot of dealmakers, especially on the buy-side are using technology to do this.”

Mergermarket data shows that tech and healthcare companies are favorite targets for investments in India. Killawala expects companies in these sectors will see greater momentum, especially fintech, (including payment systems and digital wallets), health technology, insurance, and online gaming.

She added that new-age companies are specifically more focused now on acquiring and ramping up their digital capabilities, good governance, building robust business models, and the diversification of supply chains.

ESG and due diligence: a complex mix

On the question of which area of M&A will be most enhanced by technology, 43% of the participants voted for due diligence, 30% for deal preparation, and 26% for post-merger integration.

The panelists concurred that the ESG element was becoming increasingly important in the due diligence process. Belcher presented information from a recent survey of 400 dealmakers. “On emerging risks in completing M&A transactions, 46% of them said that ESG, and specifically climate change, would be the biggest deal-breaker in the coming years for their transactions. And that came ahead of concerns over things like COVID, inflation, and regulation.”

Belcher feels that an increased focus on ESG will mean a more complex due diligence process. “So, we may see deal times slow down a little bit. As a result, any company considering M&A activities at the moment will definitely have to take ESG into consideration. And so it's going to be very key to have the right tools in place to actually manage a heavier due diligence workload.”