Dealmaking in India, which touched a record high last year, is unlikely to lose momentum anytime soon with as many as 81% of companies that took part in a survey planning to divest assets within the next two years. In 2018, mergers and acquisitions led the dealmaking spree worth a record $100-billion plus.
The survey, by accounting firm EY, also showed that 67% of the organisations polled expect large-scale divestment action within 12 months.
Around 63% of the respondents to the survey said that their last divestment was prompted by a need to streamline their business operations. Seventy per cent said that a weak competitive position was another reason that drove their last divestment.
Sixty three per cent of firms said they held on to assets for too long.
While 88% of respondents expect geopolitical shifts to push up their operating costs, 75% have said that their plans to sell non-core businesses will be affected by cross-border trade agreements and deals.
The study reveals that 65% of the surveyed firms used the proceeds from the last divestment to invest in their core businesses, with 56% saying the proceeds were used to fund investments in new products, markets and geographies.
EY India partner Naveen Tiwari said that companies needed to have a strong portfolio management strategy along with the ability to create a narrative for buyers to be able to maximise the value of their divestments. “Sellers need to be flexible in adopting different deal structures to meet value and time expectations from the divestment,” Tiwari said.
Some of the biggest proposed and undertaken divestment actions in recent years have come from state-owned companies looking to manage their debt by offloading struggling assets.
One of the biggest examples is national carrier Air India, with the Indian government having made several attempts to privatise it or sell off its assets. Last year, the government had sought to sell off 76% stake in the airline, along with roughly $5.1 billion of the state-run carrier’s debt. However, a lack of interest from bidders forced authorities to shelve their plans.
Similarly, in August last year, the government had asked state-owned Oil and Natural Gas Corp. Ltd to list overseas unit ONGC Videsh.
To discuss the emerging opportunities and challenges in dealmaking, Mosaic Digital, the corporate banner behind VCCircle.com, is organising its next edition of M&A Summit on 26 June in Mumbai.