M&A sector gets opportunities amidst the Covid crisis

M&A sector gets opportunities amidst the Covid crisis

The impact of Covid-19 on business is an open secret. As the effects of COVID-19 continue to unfold, the corporate world has witnessed a in mergers and acquisitions (M&A) transactions with deal pipelines limited to value buying and bargaining for cheap assets. The first quarter of 2020 has seen decline in M&A activity in terms of volume and value of 25 per cent and 14 per cent respectively in comparison to the same period last year. Similarly quarter two of 2020 recorded just 90 M&A deals as compared to 231 in Q1 2020, a drop of 61 per cent. The telecommunications sector grew 220x in comparison to last year in terms of deal value in Q2 2020 the deal value increased by 19 per cent primarily due to a big ticket deal in which Facebook acquired Jio Platforms from Reliance Industries for $5.73 billion.

In the first half of 2020, out of all deal categories like inbound, outbound and domestic, the greatest M&A deal activity was witnessed in the domestic category which recorded 179 deals compared to 38 inbound and 24 outbound deals. The activity in the domestic category accounted for 64 per cent of the overall deal activity; amounting to $11.9 billion of the total $22.8 billion seen in the first half of 2020.

With the spread of the pandemic, deals in some sectors have been badly effected,  however Telecommunications, Financials, Healthcare and Consumer Staples have been able to up their percentage share marginally in terms of count of deals in the overall tally.  "The crisis may open up some buy-side opportunities, leveraging on the lower valuations in the short term to seek higher return on capital in the long term.While the current deal activity is down, distress takeovers might provide new energy and we might witness potential delays in obtaining regulatory approvals. Cross border deals would also take a hit as PEs and MNCs look to conserve cash," says Sahaj R Kumar, Head- Research, VCCEdge, in a statement.

In light of the economic slowdown, the government has announced multiple incentives for various sectors. For instance, the recently announced lower corporate tax regime with an effective rate of 17.16 per cent for manufacturing companies, coupled with several production-linked incentive schemes such as the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) are likely to improve the domestic supply chain and invite a share of global manufacturing to India.

 Post COVID-19, the 'Make In India' initiative of the government has received more impetus. Hence, there could be seen a growing number of investments and consolidations in India origin firms so as to be more prepared for the future. Furthermore, with the migrant workforce being dispersed in the lockdown era, it could trigger the need for localised investments and consolidations at the state level as well.