Goldman Sachs’s India Chairman explains the country’s M&A boom

2018 proved to be a record year in India’s mergers and acquisitions space.

Led by Walmart’s $16 billion purchase of a majority stake in homegrown e-commerce behemoth Flipkart, deal volumes reached an all-time high of $125 billion for the year, twice the amount seen in 2017. However, it was only one of the many deals struck in the year.

There are many reasons why dealmakers are active in India, according to Sonjoy Chatterjee, the chairman of Goldman Sachs’ Indian business.

Size matters

Firstly, India’s market dynamics call for consolidation. “Local companies are consolidating because they need capital and scale to run their businesses”, said Chatterjee. It’s getting harder and harder for smaller firms to compete against large multinationals, which is why inorganic growth is being pursued.

In addition, higher competition is forcing companies to merge, especially in the telecom sector, as seen in the merger of Idea and Vodafone, in order to boost capital expenditure while keeping debt burdens manageable. “14 companies have been winnowed down to three, as one of India’s largest conglomerates, Reliance Industries, has set new market benchmarks for product and pricing,” Chatterjee remarked.

Stressed out

The problem of debt is not limited to telecom. Many companies have also been sent to the cleaners by the new Insolvency and Bankruptcy Code.

“Recent changes to India’s bankruptcy law are forcing more companies that can’t repay their debts into the bankruptcy process”, Chatterjee said. This is resulting in an auctioning of assets and acquisitions of bankrupt companies, most notably in the steel sector.

Old promoters have been ousted and that process is likely to continue as a huge pile of unpaid loans is still largely unresolved.

Changing models

As the smaller companies crumbled under the weight of competition, larger companies are looking to strengthen their portfolio by buying out peers.

In December 2018, Hindustan Unilever, the Indian subsidiary of consumer goods giant Unilever, which is doubling down on its consumer health business through the acquisition of GlaxoSmithKline’s (GSK) key nutrition brands like Horlicks and Boost.

Family-owned businesses shift strategy

The new generation of leaders in family-owned businesses are changing tack and looking to enter completely new verticals. “With rising foreign investment flows leading to good valuations, several families are looking to exit their businesses and deploy capital in completely new areas” Chatterjee said.

This can clearly be seen in the case of Eveready, a 114-year old company, the founding family of which is reportedly planning to sell their stake in. Even Ujjwal Munjal, the scion of the Hero Group which sells motorcycles, has commenced plans to sell AI devices through an electronics subsidiary of the company.

Sellers market

Thirdly, Chatterjee feels that foreign investors have played a big part in the boom. Despite the volatility in foreign portfolio investments, more and more institutional investors and private equity firms are shifting focus to India, especially its technology space which is coming into its own and has attracted the world’s largest tech firms, from Apple to Tencent.

India’s growth trajectory significantly outweighs that of lagging China - India is expected to grow by 7.3% this year compared to China’s 6.2% - but also because of its improvement in the World Bank’s Ease of Doing Business Index.

These factors will likely persist through 2019 and keep deal street buzzing. Deal makers may stay wary of political uncertainties until the outcome of the election. However, given that most deals, especially the large ones, are driven by a long-term perspective, there is hope going forward too.


2018 was a big year for mergers and acquisitions in India. Here are the top deals

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