As valuations vaulted on the back of the raging bull-run on Dalal Street in 2017, the merger and acquisition (M&A) segment took a breather. BusinessLine caught up with Girish Nadkarni, MD & CEO of Motilal Oswal Investment Banking, one of the top home-grown investment banks in India, to discuss the scenario, the way forward and the challenges. Excerpts:

How did the M&A segment do in 2017? How is it expected to pan out in 2018?

There was a 10 per cent decrease in the number of M&A deals in 2017 over the previous year. As the public markets became more attractive, M&A deals would have become more expensive, putting off some of the M&As. We expect deal numbers to move up in 2018, given that both buyers and sellers would have internalised the higher valuations.

How are home-grown companies faring against foreign players in the M&A and IPO segments?

Home-grown investment banks have taken the lead by far in most capital market deals. We believe that the larger domestic capital market advisors have just as good an international distribution capability as foreign banks, and their reputation and track record speak for itself. Similarly, domestic advisors have a deep track record and expertise in M&A — both domestic and cross-border. The ecosystem is quite mature, and domestic advisors can match up to their international counterparts in most segments and geographies.

Which sectors are currently seeing maximum action in M&A and why? Which sectors are expected to remain in focus, going forward?

We are seeing good demand for M&A in the IT, consumer, healthcare and industrials sectors. Consolidation in IT sector is being driven by expected increase in discretionary spending in US corporates, as well as the switch to digital. For consumer & healthcare, we expect PE-backed firms which raised growth capital in the last investment cycle to start looking at exits via M&As and IPOs. In industrials, we expect consolidation to be driven by listed companies using their strong cash positions and market caps to drive deals, driven by favourable macro environment.

What are the key challenges faced by this industry now?

There are a few challenges that this industry faces. For one, capital markets continue to remain an attractive path to liquidity for large Indian companies, thus limiting M&As. Also, buyers are seeing prices driven higher due to higher valuations in the listed space across sectors. Last but not the least, is the uncertain regulatory environment (telecom, healthcare/pharma), for instance, the draft pharma policy 2017 indicating that pharma companies may not be allowed to outsource formulations, and USFDA inspections affecting growth prospects of Indian pharma companies.

How many transactions did you close last year (number and value)? How many (number and value) are in the pipeline now?

In 2017, we completed two M&As — a total of $640 million (including advising Motherson Sumi on the $620-million acquisition of Finland’s PKC — one of the largest cross-border deals in 2017). We have around seven-eight M&A deals in play at any time, both cross-border and domestic, with each deal at between $10 million and $500 million in the consumer and industrial space.

What is driving your growth now, and what are your future plans?

We continue to work with large- and mid-sized Indian corporates across various target verticals (BFSI, consumer & retail, healthcare, industrials, chemicals, pharma, IT and media) to meet the shareholder objectives — whether it be monetisation of their companies through sale or liquidity via IPOs. We have excellent access to Indian corporates and promoters through the larger Motilal Oswal Group platform and that helps us drive our growth.

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