Forbes India 15th Anniversary Special

India M&A deal activity slides but 2024 outlook better: Experts

The funding winter, still high interest rates and sustained geo-political tensions due to wars impacted mergers and raising of fresh capital across the globe. In India, the 2023 data showed that companies are moving towards smaller deals. Healthcare, BFSI and green energy are likely to emerge as winners in 2024

Salil Panchal
Published: Dec 22, 2023 12:36:08 PM IST
Updated: Dec 26, 2023 03:36:09 PM IST

India M&A deal activity slides but 2024 outlook better: ExpertsBut both experts agree that the investment climate and deals activity for India in M&A is likely to improve in 2024, particularly after the general elections early next year. Image: Shutterstock

The year 2023 might end on a sombre note for mergers & acquisitions (M&A) activity for India, with deal value being lower than levels achieved in 2022. But experts are confident that there will be a bounce back in 2024.  

Bloomberg data shows that deal value for India fell 63 percent to $70.9 billion in comparison to $192 billion struck in 2022. A more worrisome trend is being witnessed in global M&A, with annual value down to $2.7 trillion—possibly the worst performance since 2013—based on data that Bloomberg has reported.

Geo-political tensions amid three wars, still high interest rates across various economies and the sustained funding winter have all weakened the investment climate for startups and companies seeking to raise fresh capital.  

“The year did see a slowdown in terms of pure numbers, but this cannot be looked at in isolation. On a year-on-year comparative, if one removes the mega HDFC Bank-HDFC merger deal and the Ambuja Cements acquisition, the numbers look less skewed,” says Rajat Mukherjee, partner at Khaitan & Co.  

“There is a funding winter but things have not fallen off the cliff. Valuations are getting more realistic from the euphoria of the tech-based push that we saw post the pandemic,” Mukherjee told Forbes India.

Maneesh Bhandari, founder and CEO at Growthpal, an M&A deal sourcing platform, said the difference in the average deal size was the major factor in the substantial drop in total deal value. “The majority of the deals, except for one notable outlier, were under $100 million, pointing to a preference for smaller, strategic acquisitions rather than large-scale mergers or takeovers (see table),” Bhandari says.

India M&A deal activity slides but 2024 outlook better: Experts

“This suggests a strong focus on integrating specific, targeted capabilities or technologies. Companies are gravitating towards smaller deals, which allow for quicker assimilation of talent and technology—essential for staying ahead in a rapidly changing industry,” Bhandari added.

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Manufacturing and consumer goods, financial services, also announced a good number of deals, led by software and IT services. The 2023 India M&A data shared by Growthpal highlighted that more than 80 percent of the acquirees were established in the past 15 years. Also, except for one deal, all deals were less than $100 million (for deals where deal size was announced).

India M&A deal activity slides but 2024 outlook better: ExpertsPrivate investors are taking a deeper dive into the deals ecosystem—in terms of corporate governance, meeting regulatory needs and investigation and due diligence relating to target businesses and founders. “Deals are taking longer to complete and valuations have corrected, compared to the last three years,” Mukherjee notes.

But both experts agree that the investment climate and deals activity for India in M&A is likely to improve in 2024, particularly after the general elections early next year. Mukherjee identifies healthcare, green energy, financial services, digital economy including e-commerce as sectors likely to witness the most action in the deals space in the coming year.

“Even beyond deals, India is quite likely to continue to witness sustained growth over the next 5-10 years. The opportunities on M&A, government spending, manufacturing, supply chain expansion, government policies to push for EVs, semiconductors, and telecom are all positives,” Mukherjee says.

Most financial institutions and investment banks have projected India to grow at near 6.5 percent in 2024.