Despite the headwinds fr­om the pandemic and ot­her looming uncertainties, deal activity in India witnessed a record high in 2021 and surpassed the pre-Covid le­­­vels. Businesses are showing signs of adapting, be it by embracing technology, diversifying non-core businesses, or tapping new markets through acquisitions, divestitures and fundraising. All this has led to a flurry of deal activity.

PwC recently released a report titled “Deals in India: Annual Review and Out­look for 2022”, which summarises the fi­nancial activity that took place across sectors during 2021. The report highlights how, at an aggregate level, deal values in India amounted to a little over $114.9 billion in 2021 across around 2,064 transactions, marking a 40 per cent increase in terms of value and a 60 per cent increase in terms of volume over 2020. Further, the report highlights how the technology sector continued to dominate the Indian private equity (PE) investment landscape during 2021.

A look at the key findings of the report…

Deal activity

The year 2021 witnessed a remarkable spike in deal activity, outperforming 2020 by 40 per cent in terms of value and 60 per cent in terms of volume. PE claimed the lion’s share of deal activity in 2021, contributing 57 per cent by value and 61 per cent by volume, while mergers and acquisitions (M&A) contributed the remaining 43 per cent by value and 39 per cent by vo­lume. Deal volumes were bumped up by M&A activity in 2021 – more than double the volume and 28 per cent higher in value compared to 2020.

The domestic deal activity in 2021 was up 41 per cent from 2020 in terms of val­ue, owing to seven billion-dollar deals. Economic optimism and the availability of abundant capital spurred domestic M&As in 2021, with companies liquida­ting non-core assets to st­rea­mline large corporate stru­ctu­res, and “in turn” using the cash to buy assets. In the post-pandemic world, companies have also been forced to react more quickly to competition through consolidation in order to capture a share of the pie, especially in the retail and consumer technology sectors.

PE activity reached an all-time high in 2021 and recorded 1,258 deals, worth a whopping $66.1 billion, up by 32 per cent in volume and 50 per cent in value from 2020. This was achieved by eight billion-do­llar deals, primarily in the technology sector, totalling $15.5 billion. The techno­logy sector dominated the PE landscape in 2021, contributing a total of $40 billion to deal value.

Further, 2021 was an exceptional year for buyout deals. The charge was led by five billion-dollar investments in the technology and financial services sectors, to­talling $9.5 billion. The largest deals were Carlyle’s $3 billion investment in Hexa­ware, a leading global provider of IT and business process outsourcing services, and Blackstone’s $2.8 billion investment in Mphasis, a leading provider of cloud and digital solutions. More than 70 per cent of the deals were in the technology sector, with an inclination towards consumer go­ods, marketplace platforms, fintech and edtech companies.

Technology takeover

The technology sector continued to dominate the Indian PE investment landscape. The year 2021 recorded a total of 823 de­als totalling $40 billion, approximately five times the deal value witnessed in 2020. This sharp increase was primarily due to lar­ge deal sizes – five billion-dollar deals totalling $12.1 billion, and 78 mid-sized deals (investments in the range of

$100 million-$1,000 million) totalling $19.4 billion, compared to just 19 mid-sized deals in 2020. There was also a no­table shift in interest from PE investors across subsectors. Within technology, the online services subsector had a breakout year, recording 322 deals totalling $10.9 billion in 2021, almost four times the deal value recorded in 2020. The super-accelerated adoption of digital tools and services in the post-pandemic world added several areas to the technology watch list in the short run – the platformisation of consumer financial services, alongside regulatory, market, finance and technology shifts to accelerate the transition towards clean energy, the creation and expansion of the tech-enabled “metaverse”, the on­going convergence of mobility and digital commerce, and the virtual evolution of health and wellness.

Deals in the start-up space

Indian start-ups had a blockbuster calendar year in 2021 with approximately $35 billion raised, a three-time increase compared to calendar year 2020, largely driven by fintech, edtech and software-as-a-servi­ce (SaaS). Over 250 M&A deals happened in the start-up ecosystem. Further, a reco­rd number of 43 Indian start-ups turned into unicorns in calendar year 2021. Fin­tech, edtech and SaaS were the top th­ree invested sectors, which together accounted for approximately 45 per cent of the total funding activity and the emergence of 21 unicorns.

Future outlook

The factors that contributed to the record M&A market activity in 2021 will remain influential for deal making in 2022. PE deals have been on a particularly impressive run, and are on course to grow their share of M&As. On the corporate side, the strategic shift to digital, innovative and new disruptive business models is expected to continue driving M&A decision-making. Moreover, more capital will be mo­bilised for transition to greener sources of energy, creating opportunities for M&As in 2022. S