Global private equity-backed mergers and acquisition (M&A) transactions grew 20 per cent in January-February 2022 to $159.7 billion, according to the latest data from Refinitiv, an LSEG business. 

In February 2022 alone, such transactions totalled $88.3 billion, up 24 per cent from the previous month. PEdeals account for more than one-fifth of all M&A deals ( about $741 billion) by value this year, reflecting a record annual start for PE-backed transactions. This is the highest share since Refinitiv’s records began, it said in its latest M&A monthly snapshot (February 2022).

Analysts and economy-watchers in India see this record PE-backed M&As trend having tailwinds for the Indian PE space and accelerate activity in the Indian market. They see this global trend positively impacting the Indian market in a significant measure in the coming days. Already, PE-backed companies in India are investing and buying other companies.

The Indian PE/VC industry is expected to reach $100 billion in the next 2-3 years, making it the third or fourth-largest PE/VC market globally, according to a recent IVCA-EY report. 

Add-on deals

One trend in 2021 that has caught everyone’s attention in the PE/VC ecosystem in India is the activity level on add-on/bolt-on investments.

An add-on acquisition refers to a company that is added by a PE firm to one of its platform companies. Add-ons generally provide diversification within products or services. On the other hand, bolt-on acquisition refers to a company that is acquired by a platform company that is usually backed by a PE.

Vivek Soni, Partner and National Leader, Private Equity Service, EY India, told BusinessLine, said, “Since 2015 we have witnessed $27.4 billion invested by PE/VC-funded companies or special platforms set up by PE funds with an inorganic growth thesis. Add-on/bolt-on investments have been on an accelerated growth trajectory, growing more than 10-fold from less $1 billion in 2015 to $10.8 billion in 2021. Add-on/bolt-on deals were at an all-time high in 2021, more than twice the value and numbers recorded in 2020”.

Key drivers

Consolidating market share, adding new capabilities, enhancing areas of growth, access to new geographies/markets/customer segments, and vertical/horizontal integration have been some of the key drivers behind the add-on/bolt-on deal activity undertaken by most PE/VC-funded companies that benefit from the strong PE/VC-backing even when not having positive cash-flow from operations, he added.

On an average PE/VC-funded companies did two add-on/bolt-on deals with a few exceptions that have done more than 10 deals, sometimes even two-three deals in a single year. The most notable among these include ReNew Power, BYJU’s, Paytm, Zomato, Quikr, Cardekho and Nazara, according to a EY-IVCA report.

Pritika Kumar, Founder, Cornelia Chambers, a law firm, said, ”We are seeing a steady increase in PE and VC investment in technology and other sectors in India. Given the population, purchasing power, improvement in the ease of doing business, improvement in the legal and regulatory frameworks around investments, the increase in the PE and VC investment activity in India is natural”.

Since the 1990s, there has been a marked increase in PE purchases in the global volume and value of M&As. 

PE firms and industrial enterprises are the two primary types of acquirers involved in an M&A. However, both maintain different approaches toward ownership, based on distinct goals, said PE industry experts. Each has a clearly distinct business model with different approaches and procedures toward acquisition.

PE firms have a different business model and have a finite goal while acquiring a business. They have a different strategy before and after the deal.

Snapshot of 2022

Despite monthly decline, Global M&As hit $741 billion during the first two months of 2022, Refinitiv data showed. Deals totalling to $298.7 billion were announced during February, down 33 per cent compared to the value recorded during January and 35 per cent less than value recorded during February 2021.

While real estate sector at $65 billion led by value during February, the technology sector was the most active sector by the number of deals announced. Technology has been the leading sector by number of deals during each of the last 26 months. Tech M&A totalled $187.4 billion so far during 2022, up 24 per cent from last year and an all-time year-to-date record, according to Refinitiv.

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