With Covid-19 accelerating disruption across sectors, companies are responding by transforming their businesses through mergers & acquisitions (M&As). India M&A is near an all-time high at about $60 billion, with first-time buyers driving volumes, a new Bain & Company report released on Monday revealed.

This report— India M&A: Acquiring to Transform— showed that first time buyers accounted for more than 80 per cent of deals closed in 2020 and 2021, a marked increase from less than 70 per cent through 2017 to 2019. The nature of deals is more broad-based, including more mid-sized deals ranging from $500 million to $1 billion compared to the mega $5 billion deals that drove activity in 2017-19, the report showed.

Bain & Company, a global consultancy, sees seven big M&A themes continuing in 2022 including the aspect of India’s emergence as a hot spot for renewable investments.

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“The unprecedented flurry of deals seen in 2021 came from a higher pressure to grow and a need to seize more opportunities to disrupt, faced by CEO’s today”, said Karan Singh, Managing Partner, Bain & Company India and author of the report.

“With shareholders expecting companies to grow their annual earnings by nearly a third over the next three years, companies are being bold and looking at transformational deals where the objective is not just to increase scale but to build new engines of growth and new capabilities, beyond the company’s core business.”

The report noted that today’s CEOs face dual pressures of growth and disruption — and both at historic levels. Shareholders are expecting companies to deliver 27 per cent annual earnings growth over the next three years, which is an unprecedented 7x increase over the past three years. What’s more, companies are expected to deliver this growth in an environment of extraordinary disruption. Of India’s 69 unicorns, 46 were set up in 2020 and 2021 alone and these start-ups are driving disruption across all sectors, from finance to retail to technology.

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The good news for corporate executives is that fuel for growth is available in abundance. Corporate Cash balances and foreign direct investment inflows are at their highest-ever levels, private equity (PE) dry powder is available and interest rates are at a 10 year low.

Armed with this capital, one of the ways companies are responding to disruption and growth expectations is through acquisitions, the report highlighted.

Outlook for 2022

"2021 has shown that companies are ready to reshape their portfolios, deploying M&A as an important and relevant tool in their transformation," said Karan Singh. "We foresee this trend continuing and another exceptional year for Indian M&A in 2022. There is plenty of historic evidence to show that companies that sharpen their portfolios through acquisitions/divestures during turbulence do better than the market. During the 2008 financial crisis, Indian companies that acquired or divested outperformed their peers 2:1 in earnings before interest and taxes (EBIT) growth over the next five years."

The report also highlghted successful approaches for scope deals, including those designed to gain a much-needed capability and are remarkably different

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