The year 2020 proved to be a challenging one for businesses owing to the Covid-19 pandemic. While the pandemic led to serious concerns around macroeconomics, corporate governance, changing regulatory norms, geopolitics and global tensions, financial activity in India more or less retained its momentum vis-à-vis 2019.
PwC recently released a report titled “Deals in India: Annual Review and Outlook for 2021”, which summarises the financial activity that took place across sectors during 2020. The report highlights how at an aggregate level, deal values in India amounted to a little over $80 billion in 2020 across around 1,268 transactions, marking a 7 per cent increase in terms of value as compared to 2019. Further, it states how the telecom sector played a key role in the overall deal dynamics of the country during 2020.
A look at the key findings of the report…
Deal dynamics in India
Between January 1, 2020 and December 7, 2020, the period that the report considers for its analysis, India witnessed a total of 1,268 financial deals. While the number of deals was much smaller than the 1,945 deals closed in 2019, the total deal value was much higher and stood at $80.4 billion vis-à-vis $74.8 billion in 2019. Further, strategic deals, that is, mergers and acquisitions (M&As) accounted for over 50 per cent value in 2020, recording investments worth $42.2 billion, while private equity (PE) activity kept pace with 2019, recording investments worth $38.2 billion.
Among sectors, telecom accounted for nearly 25 per cent of the total deal value, with Jio Platforms alone attracting sizeable inbound investments. In fact, the first half of 2020 was marked by big-ticket deals in the telecom space. However, excluding these deals, the period witnessed a slowdown, with investors putting their plans on hold and shifting focus towards cash conservation.
Inbound M&A activity
The inbound M&A activity recorded an 11 per cent increase in 2020 as compared to 2019. However, over three-quarters of the $13.4 billion invested was concentrated in Jio. Facebook invested around $5.7 billion in Jio Platforms for nearly a 10 per cent stake, which was possibly one of the largest deals to be completed virtually during the lockdown. This was followed by a $4.5 billion investment from Google for a 7.7 per cent stake in Jio Platforms.
Optimism on the PE front
Expectations exceeded on the PE front as investments worth $38.2 billion were recorded in 2020, amounting to nearly the same level of activity as in 2019. The Reliance Group was once again a large contributor to PE deal values and helped in retaining the momentum of PE investments in 2019. Following Facebook, a consortium of funds, including TPG, KKR, General Atlantic, Silver Lake, other PE players and sovereign wealth funds invested $9.8 billion in Jio Platforms. These investments accounted for 66 per cent of the growth-stage PE investments in 2020, driving growth investments to an all-time high of $15 billion.
Shift in investor priorities
Over the past few years, technology, energy, financial services, infrastructure and real estate have been among the top sectors attracting PE investments. However, there has been a slight shift in investor priorities in 2020. Telecom replaced technology in the top position by attracting PE investments worth $11.2 billion. The retail sector was another new entrant, attracting investments worth $6.5 billion. Both sectors recorded increased levels of investment mainly on account of large-scale investments in the Reliance Group entities.
Technology accounted for investments totalling a little under $6 billion. Further, online service aggregators accounted for the majority of investments in the technology space.
The way forward
Net, net, 2020 ushered in a wave of accelerated change in terms of perspective and operational aspects for India. Owing to the Covid-19 crisis, businesses were driven to quickly repair, rethink and reconfigure their corporate strategies to ensure financial stability and operationality. The crisis also required organisations to develop a robust infrastructure, invest in digital and technology enablement, and become financially inclusive. In fact, technology became a driving force behind the operational continuity of several organisations during the pandemic and this trend is expected to continue in the post-pandemic era as well. Therefore, a number of strategic investments in the technology space are expected in the coming years.