From last year’s $84 billion, India's M&A activity is on the brink of a remarkable surge in 2024, signalling a colossal leap in the Indian deals market.
The convergence of abundant dry powder ($2.6 trillion), aligning price expectations, optimism around economic growth (6.5% in 2024), and a growing focus on resilience (such as near-shoring and friend-shoring to bolster supply-chain models) sets the stage for a thriving M&A deal market in 2024. While private equity is expected to increase its share of global M&A to over 40%, pharma & healthcare, green energy, financial services, and the digital economy are expected to witness the most action in the Indian deals space.
In the vibrant arena of Indian M&A for 2024, a dynamic duet of deal-making and successful post-merger integration unfolds. This year, the spotlight shall be on the deals struck as well as the symphonic blend of businesses after merger announcements. It is a narrative of seamless technological integration, sustainable practices, unification of cultures and meticulous sector-specific amalgamations, playing together to the tune of investor expectations and operational excellence.
Strategic Supremacy: Shift in Investor Paradigms from Operational Mastery to Strategic Foresight
In 2024, India's M&A horizon will witness a dramatic shift; investors will no longer just sign checks, they will shape destinies. Gone are the days of mere operational focus in integration programs; the new era needs to be more about strategic mastery post-acquisition. Investors and buyers should don the hat of visionaries, diving deep into the integration process with a laser-sharp focus on fulfilling top management's strategic agenda. Integration spends are expected to increase from an average of 5-7% to 8-10% of the deal size.
Investors should evolve beyond financial backers, as strategic architects preparing joint business plans, discussing expansion strategies with the acquired entity’s management, and co-creating harmonised ways of working across processes and systems to form the secret recipe for ensuring integration success. M&A leaders will need to be ready for a role expansion including nurturing talent, co-creating strategic plans, and seamlessly weaving together critical functions like finance, HR, and operations.
Investors should be pivotal catalysts, driving funding and the strategic direction of M&As. They should be at the heart of transforming these business marriages into powerhouse unions, designed not just for immediate gains but for long-term, sustainable growth and market dominance.
Green Fusion: Revolutionising M&A Integration with an ESG Heartbeat
Shareholders, employees, customers and the public are looking more closely at what companies stand for, their purpose and how they fulfil it during mergers. M&A professionals need to expertly navigate the ESG landscape during integrations, uncovering opportunities for value creation and identifying potential risks. They can also uncover potential new risks including ones that deal teams may have little experience with, like tangible dangers arising from climate change's forecasted influence on sea levels and weather patterns. Additionally, there are risks linked to the shift away from fossil fuels.
In M&A, nearly 50% of companies now prioritise ESG in the deal process, with the tech sector leading the charge.
Additionally, the share of ESG deals have gone up considerably in the past few years, and are expected to be over 22-25% of the total deal volume in 2024.
In sectors like renewable energy, detailed financial breakdowns that quantify environmental impact, costs, and benefits, signalling a fundamental change in quantifying sustainability as a crucial financial factor in deals are expected. PMI will involve integrating sustainability practices and policies, including aligning corporate social responsibility initiatives, environmental standards, and governance structures. Companies need to ensure their combined operations adhere to the highest ESG standards, which may require significant changes in supply chain management, resource utilisation, and corporate governance. The challenge lies in maintaining operational efficiency while integrating these sustainable practices and reporting their impact transparently.
Tech Triumph: The AI Powerplay in M&A value creation
GenAI has the potential to turbocharge M&A processes by up to 50-60%. Most of the C-suite leaders plan to use GenAI in the M&A process in 2024, largely driven by imagining deal structures followed by deal strategy (shortlisting targets) and M&A integration. Companies are increasingly adopting AI tools to shortlist targets, streamline workflows between the acquirer and the target and facilitate cultural integration.
For best outcomes, PE funds and corporates need to integrate AI in M&A into internal processes like due diligence, use AI for strategic insights, and apply it for both strategic and operational integrations. Staying abreast of AI advancements and regulatory changes, and tailoring AI strategies to specific business needs are essential. The evolving AI landscape in M&A is marked by increased automation of routine tasks, AI-driven employee data analysis for smoother cultural assimilation and optimising internal structures for enhanced post-merger performance.
India's M&A Renaissance - A Transformational Surge Beyond Transactions
As per a UN report, global economic growth is projected to slow from an estimated 2.7% in 2023 to 2.4% in 2024; South Asia’s economy grew 5.3% in 2023, and may register 5.2% growth in 2024, driven by 'robust expansion’ in India.
In 2024, India's M&A landscape is poised for a significant upswing, particularly after the general elections. Beyond transactions, India's economy is geared for sustained growth over the next five to ten years, driven by strong M&A activities, government investment, manufacturing progress, supply chain enhancements, and forward-looking policies.
(The author is a partner - deal value creation, at the financial advisory firm BDO India. Views expressed are personal.)
