At $73 bn, deal activities see a sharp 40% drop

With $120 billion worth of deals, 2018 was the best year on record. Many also blame frequent policy flip-flops and increasing tax scrutiny as big dampners for business.

Deepening economic woes and global trade challenges have led to a near 40 per cent plunge in deal activities at $73 billion across 1,500 transactions this year, still making it the second-best year for deal activity after 2018.

Falling numbers come amid the plunging growth figures--September GDP clipping at an over six-year low of 4.5 per cent driven primarily down by a deep freeze in consumer spending.

Many also blame frequent policy flip-flops and increasing tax scrutiny as big dampners for business.

With $120 billion worth of deals, 2018 was the best year on record, and 2019 deal size at $73 billion is a clear plunge to the tune of 39.1 per cent from the record, show the data collated by PwC India.

The street play was led by private equity investments which nearly retained the momentum, recording deals worth $36 billion as of November, still an 11 per cent fall from $40 billion last year.

Significantly, the largest M&A deal-- the Rs 42,000-crore or over $6 billion, buyout of Essar Steel by ArcelorMittal which concluded only earlier this week, is not included in the list, which otherwise would have increased the tally by $6 billion more.

And Sanjeev Krishan, partner and deals leader at PwC India does not see a smooth sailing for the dealmakers next year saying the deepening economic headwinds may challenge the deal activities in the beginning of 2020.

"But rising financing needs of businesses will create enough opportunities for growth capital investors, which together with stressed/structured fund investors will drive M&A activity in the future," he is hopeful.

The steep fall was because the year saw fewer large deals compared to 2018, where M&As accounted for the majority of this slowdown.

Strategic M&As also saw a sharp decline from 2018, recording 765 deals worth around $37 billion, which is only 50 per cent of the deal value recorded last year.

Foreign investors interest in India remained strong though, with inbound deals accounting for 32 per cent of deals in value.

Similarly, consolidation continued to be a key driver for M&As, accounting for 57 per cent of the strategic deal value.

Sovereign wealth funds (SWFs) and pension funds showed a growing risk appetite, expanding their interest from traditional sectors like infrastructure and renewables to the late-stage start-ups.

SWFs from Singapore, Abu Dhabi and Canada have been a part of some of the largest PE investments this year, playing a significant role across key segments, including infrastructure and renewables.

SWFs have also played an active role in the late-stage start-up space, providing growth funding to e-commerce players across segments such as logistics and pharmaceuticals.

This not only indicates the growing interest of SWFs but also, more importantly, their growing risk appetite.

However, the report says 2019 was a landmark year for buyouts worth $12 billion.

PE exits saw a sharp decline with only 185 exits worth a little over $9.5 billion.

Exits through market sales accounted for the largest share in terms of value, which rose 45 per cent over 2018.

The year also saw the largest buyback deal in the online hospitality space.

In-bound activity alone accounted for 32 per cent of M&A deal value this year, an uptick from 28 per cent in 2018.

Deals were seen across sectors, including steel, energy, infrastructure and financial services.

Inbound activity amounted to around $12 billion comparison to 2018, which saw deals worth $22.4 billion and which included a noteworthy capital infusion in the e-commerce space.