Here’s How Pandemic Has Shaped M&A Deals

According to Grant Thornton’s report, COVID-19’s impact on Indian M&A has been a mixed bag; India recorded over 350 M&A deals worth $37.5 billion
  • BY Jaspreet Kaur

    Feature Writer, BusinessEx

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  • Jul 23,2021
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  • 11 Mins Read

Businesses across the globe have always profited from mergers and acquisitions (M&As). South Asia too has seen a fair share of M&A deals with growth in recent times. But it's only in India that we've begun to see consistently large deals. There has been a paradigm shift in the Indian economy with the corporates looking at a significant part of their overall business being driven by acquisitions. While historically M&As were an integral part of a company's growth strategy, it was usually only for larger companies acquiring smaller portfolio companies. The reverse was true when smaller companies tried to acquire larger ones – it was normally an acqui-hire deal where the seller's core businesses didn't see any major change post-acquisition. 

Merger and acquisitions (M&A) have been the most sought after activity of big business houses in India following the advancement of globalization. Indian firms have been trying to improve their competitiveness by merging with or acquiring other companies. To achieve this objective, many Indian companies have given a priority to the international market and developed strategies not only to make acquisitions abroad but also to merge with foreign firms.

Mergers and acquisitions are the most effective way of acquiring new technologies. In spite of this, the number of M&A deals in India is small compared to the total numbers. The problem is that Indian businessmen believe that only tangible assets are worth acquiring. This is true for acquired companies as well. A material company is not necessarily a material M&A deal.

Difference Between Mergers and Acquisitions 

Merger versus acquisition is an important difference between business options, but understanding the difference can be a challenge for those not well versed in law. Merger and acquisition are words that are often used interchangeably  by non-legal types since they both sound positive and business-like. Both words conjure up images of strength and growth.

The difference between mergers and acquisitions is simple but important: in a merger, the shareholders of one firm become the shareholders of the other firm, and both firms continue as going concerns. In an acquisition, at least one of the merging firms is often put into receivership.

Merger and Acquisition in India 

During the pandemic, the Indian economy halted and affected business transactions. Owing to which, business transactions were not taking place in a large number as compared to the previous year (2019). According to a report by Grant Thornton, COVID-19’s impact on Indian M&A has been a mixed bag. India recorded over 350 M&A deals worth $37.5 billion – the lowest yearly volume since 2011. Domestic buyers and sellers continued to dominate the M&A deal making space, accounting for more than half of the year’s deal volume. Owing to the challenges associated with the pandemic, Q2 2020 recorded the lowest cross-border deal volume in any given quarter since 2011. 

The report further states that despite this, the crossborder deal activity recorded over 140 transactions with deal values worth  $21 billion (including Jio’s approximately $10 billion investment from Facebook and Google). Inbound deals recorded the lowest deal volume at over 65, with over $18 billion worth deal value on the other hand, overseas acquisitions by Indian companies saw over 75 transactions with values almost increasing by 1.5 times to $3 billion compared to 2019 on account of one Haldia Petrochemical’s $1.5 billion acquisition of Lummus Technology.

The pandemic has testified that the foundation of various businesses showcased how the MSME industry is hollow and weak from within. It taught that the new business ecosystem should be a blend of technology and brick and mortar.

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