At a Glance

• After a report 2022, the M&A market in India maintained its long-term momentum in 2023.
• Midmarket acquirers had been energetic, together with conglomerate M&A, Engine 2 acquisitions, and steadiness sheet restructuring.
• Market sentiment is bullish, with most dealmakers anticipating a continuation or an enchancment throughout 2024.
• Buyers are partaking in additional subtle pre-deal diligence and extra detailed post-deal planning.

This article is a part of Bain’s 2024 M&A Report.

While a lot of the globe’s developed economies are within the doldrums, fast-growing India continues to hurry forward, with its annual development forecast at 6% to 7% vs. 2% or much less for developed markets.

This is mirrored in India’s M&A exercise. While offers slowed down following a growth 12 months in 2022, exercise in 2023 remained strong, with quantity estimated to be above ranges seen over the previous 10 years, excluding 2022 (see Figure 1). An improve within the relative share of offers in sectors with a structural development outlook and favorable insurance policies towards renewable vitality, infrastructure, logistics, and manufacturing accounted for one in each three offers over the previous 18 months. Healthcare additionally emerged stronger, with deal volumes rising constantly over the previous 5 years, the results of high quality property coming to market and a optimistic sector outlook.

India’s deal depend has maintained momentum in 2023, even after a report 12 months of exercise in 2022

More than 80% of respondents to our annual M&A Practitioners’ Outlook Survey from India count on to shut an analogous variety of offers or extra in 2024. They additionally count on the supply of enticing property to extend. M&A practitioners in India are usually not stymied by lots of the headwinds that stall offers in different markets—they’re much less involved about value of capital, for instance.

The regular exercise and elevated urge for food for M&A way extra competitors for offers and sustained valuation throughout sectors. But are the midmarket and conglomerate consumers that make up an rising share of M&A exercise in India as much as the duty of successful the offers that can assist them scale their companies or discover new sources of development amid intensified competitors?

Deals by midmarket acquirers (as much as $1 billion in income) accounted for nearly 50% of India’s M&A exercise. Scale M&A helps these firms complement natural development to construct trade management positions over time. For instance, mattress maker Sheela Foam introduced its transfer to amass rival Kurlon, and Ipca Laboratories made a bid for a controlling stake in pharmaceutical peer Unichem.

Torrent Pharmaceuticals illustrates how this technique can play out over years. It accomplished a collection of acquisitions which have grown in measurement and ambition, beginning with Elder in 2013, adopted by Unichem’s home enterprise in 2017, and most lately the $245 million deal for Curatio. The acquired manufacturers have helped Torrent bolster its branded generics portfolio in addition to construct a high-value client well being portfolio. Today, Torrent is among the main pharma firms in India, with demonstrated urge for food for extra M&A.

Meanwhile, conglomerates are actively pursuing Engine 2 alternatives to create new traces of development. For instance, Reliance Retail continued its long-running acquisition drive in 2023, constructing omnichannel retail scale with its purchases of Raskik, V Retail, and Ed-a-Mamma. Aditya Birla Group’s acquisitive home of manufacturers enterprise, TMRW, made its ninth acquisition in 2023 with menswear model TIGC, including to its eight digital-first life-style manufacturers already acquired. Industry leaders are additionally branching out into new development areas. For instance, PI Industries, a number one agrisciences firm, forayed into pharma with two world acquisitions.

Other massive firms reshaped portfolios and strengthened steadiness sheets by way of divestitures and spin-offs. Noncore disposals included offers comparable to SpiceJet hiving off SpiceXpress, its cargo and logistics enterprise, and Dalmia Cement offloading its refractory enterprise by way of a share-swap settlement to concentrate on cement manufacturing in late 2022. Raymond Consumer Care has reworked its portfolio by divesting its fast-moving client items enterprise. First, it offered its main manufacturers in deodorants and sexual wellness classes to Godrej Consumer Products; then, it de-merged its life-style enterprise to create a separate listed entity.

As midmarket and conglomerate consumers put together for elevated competitors, they should extra rigorously assess their diligence capabilities and their potential for post-deal worth creation. High-quality due diligence is all the time a essential issue that contributes to offers outperforming expectations. With extra competitors within the combine, the surest method to succeed is to return armed with proprietary insights from diligence which might be deeper and extra targeted than that of rivals.

Midmarket acquirers constructing out scale positions search to amplify top-line development and profitability. Therefore, due diligence ought to examine the goal’s buyer positioning and operational efficiency for sources of income and value synergies. Conglomerates considering an Engine 2 platform acquisition may have a broader diligence agenda. They want to check not solely the underlying industrial dynamics but additionally establish the essential expertise and capabilities distinctive to the property and the way these will finest create worth underneath new possession. They may take a look at potential new worth propositions with clients by way of major analysis or use third-party information to get an outside-in view on the goal’s expertise and tradition.

A number one life sciences firm did intensive major analysis with customers, medical doctors, and chemists each within the subject and by analyzing on-line client evaluations to evaluate the total potential worth for the goal’s manufacturers. The analysis uncovered an unanticipated alternative to speed up the expansion of choose manufacturers within the portfolio. That alternative grew to become a part of the deal thesis, and it has resulted in extra worth creation publish acquisition.

In one other instance, an acquirer evaluating a goal within the wearables ecosystem determined to dig deeper into the goal’s provide chain, which was a key to the potential acquisition’s market management. While conducting interviews with suppliers and market contributors, it was found that an early benefit that the goal had in product design and provider relationships was not sustainable.

As all the time, a fantastic diligence additionally plans for profitable integration. A midmarket firm doing a scale deal might have to steadiness fast operational integration with longer-term initiatives to assist income development. For instance, when a number one Indian client merchandise firm acquired a world competitor’s India enterprise, it moved rapidly to start integrating non-customer–dealing with capabilities, but it surely deliberately stored the 2 gross sales groups separate for six months to make sure that there was no frontline disruption throughout a peak season. In offers which might be targeted on capabilities, a unique method could also be required—sustaining an acquisition as a standalone enterprise run by its founders, for instance.

As extra property turn into obtainable and competitors heats up in India, disciplined diligence can present the sting to win the deal, creating worth for midmarket consumers and conglomerates alike.