Consolidation, transformation and diversification: Businesses unlock a new future with a deals approach

In the post-pandemic world, business leaders are evaluating and engaging in strategic acquisitions or investments as a means to negotiate a bridge between companies on a collaborative path or between companies looking to complement their strengths

Sanjeev Krishan
Updated: Dec 8, 2021 07:00:56 PM UTC

Sanjeev Krishan is Chairman of PwC in India. Previously, he served as the Deals leader. Sanjeev has been with the firm for 29 years, having joined in 1991 as an articled trainee. He became a partner in 2006 and has successfully led the firm’s Transactions, Private Equity and Deals business over the years, getting the firm to a pre-eminent position amongst its Private Equity clients and their investee companies. Sanjeev is passionate about playing a part in building a sustainable future for the society we live in, and actively advocates the causes of conservation, socio-economic inclusion and diversity. He has also been specifically focussed on sponsorship of women employees, especially to get them back to work after their mid-career breaks.

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Over the last 12–18 months, the business landscape has undergone a rapid transformation with an accelerated pace of innovation and digitisation, driving leaders to explore new and emerging areas of importance. Image: Shutterstock

Recovery is no longer about bringing businesses back to where they once were. It is now about establishing where businesses need to be in a changed future. Equipped with learnings from the pandemic and emerging disruptions, boardroom conversations have shifted towards cultivating resilience and establishing a purpose-driven culture—an imperative to building better and stronger organisations of the future. In doing so, several aspects which may have been considered as ‘value-adds’ not too long ago have now become ‘must-haves’—essential elements to achieve reinvention at scale.

What does this translate into for corporate India? Consolidation, transformation and diversification—a deals-led approach appears to be the chosen route. Whether in the form of acquisitions, divestments, raising capital or even refinancing, organisations are looking to enhance operations and streamline processes to achieve sustained growth to prepare today for the uncertainties tomorrow may present. Over the last 11 months, we have seen a significant uptick in deal activity in India, with cumulative deal value reaching around $100 billion across strategic mergers and acquisitions as well as private equity investments, surpassing not just 2020 but also 2019 in value, which saw deals worth around $75 billion.

Organisations are looking to break into new markets, expand their portfolios, build scale, optimise performance, drive profitability, have healthier balance sheets and, ultimately, create long-term value. And striking the right deal unlocks numerous possibilities.

Unlocking growth potential – looking beyond evolution and towards a revolution

What has become evident is that BAU (business as usual) growth is no longer enough—leaders are looking to achieve exponential growth. A key lever is expanding business segments and operations through strategic deals, alliances and partnerships. It is no longer about simple forward or backward integration. Organisations are evaluating high-growth areas, which may have been historically considered unrelated, and are finding new ways of creating synergy. Intelligently planned deals can provide the power to harness expertise, skills, reach, and strengthen the foothold in the market. Another aspect that has gained momentum over the last two years is expanding geographical reach—evident from the rising number of cross-border transactions.

A crucial aspect of growth is also understanding weaknesses and addressing them. Divestments of non-core assets are gaining traction with businesses looking to cut costs, increase liquidity, and drive profitability in core areas. Distressed businesses are finding new homes with cash-rich businesses that can leverage attractive valuations and turn them around to further their growth agenda.

Unlocking opportunitiesnecessity is the mother of invention

They say it is not the strongest who survive nor the most intelligent, but those ablest to change. Over the last 12–18 months, the business landscape has undergone a rapid transformation with an accelerated pace of innovation and digitisation, driving leaders to explore new and emerging areas of importance. The pandemic provided an impetus to the digital ecosystem with several new business models, such as D2C, emerging. With consumers increasingly looking at online avenues, ecommerce players witnessed a surge in activity, which is driving several traditional players to explore strategic acquisitions in this space.

Likewise, with education moving to online platforms, edtech witnessed an exponential increase in activity. Realising the opportunity at hand, private equity investors have pumped $28 billion into tech companies in this year alone, nearly equal to the cumulative PE investments in this space over the last three years. The opportunities presented by this evolving landscape are huge. Businesses will need to explore these possibilities to stay relevant and competitive.

Unlocking longevity – moving sustainability up on the business agenda

To drive long-term success and effectively mitigate potential risks, businesses need to address stakeholder needs and create value for the entire ecosystem. A large part of organisational resilience hinges on sustainable practices—making ESG an unavoidable topic of conversation in all boardrooms. We are seeing several large conglomerates make sizeable investments in the green energy space—expanding renewable portfolios and growing their exposure in the segment. Simultaneously, the manufacturing space is looking at enhancing efficiency, building resilience, and optimising supply chains through green solutions. PE investors are increasingly considering ESG metrics when evaluating investments, and this will play a huge role in advancing the sustainability agenda.

Unlocking value – coming together is a beginning; working together is success

No matter what is the rationale behind the transaction, the journey does not end when the deal is concluded. This simply kicks off a new journey of post-merger integration which can make or break the transaction. Bringing together businesses involves linking business strategy to transformation, and successful integration plays a crucial role. Both sides of the equation need to be in sync, be it in terms of culture, systems, processes or goals. Speed, agility, communication, a shared vision and minimal business disruption are the key to any successful merger.

The current landscape is promising, and the fear of missing out is driving dealmakers to leverage every opportunity. Business leaders are evaluating and engaging in strategic acquisitions or investments as a means to negotiate a bridge between companies on a collaborative path or between companies looking to complement their strengths. While the surge in activity could be on account of pent-up demand, a large part of it could be attributed to the focus on resilience building and recovery. We could expect to see business leaders working together to create value, collaborate with the public and private sectors to drive collective success. This, in turn, would further fuel an impactful deals-led recovery.

The author is Chairman of PwC India.

The thoughts and opinions shared here are of the author.

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