Footprints of Merger & Acquisition Deals in India: 2022
The corporate world has long involved Mergers and Acquisitions (‘M&A’) to gain a competitive edge and ultimately boost shareholder value. The Companies must frequently make decisions about these measures in the today’s dynamic economic environment; after all, management’s goal is to maximise shareholder value.
The majority of Indian Companies have chosen M&A to expand in the current market as the country’s industries have become more vulnerable to both domestic and foreign competition and competitiveness has become essential for their survival.
The major objective of most of Indian Companies is to influence global consumers and profit from it. This global consumer influence can be accomplished by collaborating with other already-existing or newly-established businesses both domestically and internationally.
M&A has proven to be a comprehensive method for growing creation portfolios, breaking into new markets, learning, increasing access to research and development, and acquiring access to the resources that enable a company to function globally.
In all economic sectors, including Information Technology, R&D, Pharmaceuticals, Infrastructure, Energy, Consumer Retail, Media & Telecom, Financial Services, and Hospitality, India has been growing quickly and rising to the top.
According to the World Bank’s most recent India Development Update (‘IDU’), a flagship publication of the organisation, “India’s economy has demonstrated resilience despite a challenging external environment.” In contrast to most other developing markets, India’s economy is reasonably well positioned to withstand global spillovers, according to the research “Navigating the Storm” even though the worsening external environment would negatively affect India’s development prospects. The Indian economy will grow less in 2022–23 fiscal year compared to 2021–22 fiscal year as a result of tighter global monetary policy cycles, sluggish global growth, and high commodity prices.
In spite of these obstacles, IDU predicts that India will continue to grow its GDP quickly and rank among the fastest-growing major economies in the world because of strong domestic demand. Comparatively speaking to other emerging markets, it contends that India’s economy is more protected from global spillovers. Thus, investors, larger companies, and industrial organisations perceive the Indian market as being in a stage of expansion and proliferation in which shareholder returns and return on capital are both high, leading to a sharp rise in both inbound and outbound M&A deals.
Covid-19 epidemic ultimately turned out to be a blessing in disguise for the country’s digital entrepreneurs because, in year 2021, the restrictions put in place by the Government to curb the spread of the illness and the fear of contracting the virus made it possible for creative firms to flourish with new startup ideas. The traditional businesses suffered as a result of their incapacity to develop and adopt emerging technologies, whilst Indian entrepreneurs raised record amounts of money as investments for their startups.
However, in contrast to year 2021, which saw the Indian startups ecosystem set numerous milestones, year 2022 saw closures, layoffs, salary freezes, and funding shortages. Throughout the year, both the public and private sectors were impacted by the ongoing Russia-Ukraine conflict, the resulting geopolitical tensions, and the rise in worldwide inflation.
Due to a lack of funding, businesses were forced to close their doors or be bought out by larger companies as foreign investors, who had invested billions of dollars in Indian startups in 2021, tightened their purse strings due to challenging economic weather. As a result, the beginning of year 2022 saw the greatest number of startups M&A deals too.
The highest number of M&A deals occurred between January and September of year 2022. Although, India’s corporate sector saw a record number of M&A deals in the first nine months, in November 2022 the country recorded 119 deals worth USD 2.2 billion, a 40% decline in deal volumes and a 37% decline in deal values from November 2021, according to the ‘Monthly Dealtracker – Nov.-2022’ report by Grant Thornton Bharat. In year 2022, this was the month with the fewest deal volumes. Due to two expensive transactions in M&A deal arena, although the total number of deals decreased by 8% in comparison to October 2022 while their prices rose by 4%.
While the value of M&A deals increased by 88% over November 2021, the volume of M&A deals fell significantly by 62%. As in the past, domestic deal making dominated M&A deals, however, cross boarder activity also grew, making almost 47% of M&A deals. Cross-border M&A deal values and volumes were dominated by Inbound M&A deals.
Let’s review the foot prints of significant M&A deals from year 2022:
- Acquisition of Air India by Tata Group:
After successfully bidding INR 180,000,000,000/- (Rupees Eighteen Thousand Crore only) for a 100% share in Air India, Tata Group bought Air India (AI) through its subsidiary Talace Private Limited (TPL) in January 2022. Given that the Tata Group also owns a majority stake in AirAsia India (AAI) and Vistara, a joint venture with Singapore Airlines (SA), this acquisition may be a component of the Tata Group’s overall aviation business strategy. With an approximate completion date of year 2024, the Tata Group is about to start the process of unifying all of its airline operations under the brand ‘Air India’.
Currently, the Tata Group have majority owned four airlines: AI, Air India Express (AIE), Vistara, and AAI. Along with AI, the Tata Group also bought a 50% investment in the ground handling firm Air India SATS Airport Services Pvt. Limited (AISATS) and AIE, a completely owned low-cost subsidiary of AI that operates in the short-haul international market.
The Tata Group owns 83.67% stake in AAI and a majority 51% stake in Vistara, with Malaysia-based AirAsia Berhad owning 16.33% of the former and 49% of the latter. As part of its airline portfolio consolidation, the Tata Group has decided to purchase AirAsia Berhad’s stake in AAI for $30 million.
Based on the overall approach and movement of the M&A deal, it is possible that the consolidation process may begin with the merger of AAI into AIE and be completed within the next year. Following that, the Tata Group may consider integrating Vistara, its full-service carrier, into AI, with the possibility of SA, a Vistara equity partner, eventually partnering with the Tata Group to become a part-owner of AI as well.
- Merger of ZEE Entertainment And Culver Max Entertainment:
The merger of Zee Entertainment Enterprises Limited (ZEEL) and Culver Max Entertainment, previously Sony Pictures Networks India Pvt. Limited (SPNI), two of India’s biggest media firms, is expected to be worth many billions of dollars. The ZEEL board of directors approved the merger of the two companies, which has the potential to make the merged entity being one of the most prestigious and significant in India.
In a joint statement released in December 2021, ZEEL and SPNI stated that the Japanese corporation would hold 50.86% of the merged entity while ZEEL promoters would hold 3.99% and public shareholders would hold the remaining 45.15%. Promoters of ZEEL will receive a non-compete fee from SPNI as part of the deal, which they will use to inject primary equity capital into SPNI and purchase shares of the company. These shares would eventually correspond to about 2.11% of the equity shares of the merged entity.
Although ZEEL still lacks the funding support for its expansion objectives, ZEEL and SPNI merger will increase the merged entity’s access to cash flows and financial strength. Revenue synergies from ZEEL and SPNI merger will be reflected on the earnings call for the merged entity’s fiscal year 2023. The majority of the anticipated synergy benefit will come from advertising revenue, while synergies in subscription revenue will be dependent on the New Tariff Order that TRAI anticipates issuing in the near future.
The CCI has approved ZEEL and SPNI merger in December, 2021 with a few minor modifications proposed by ZEEL and SPNI, including the CCI’s requirement to sell three of its channels, which ZEEL voluntarily agreed to sell three Hindi channels – Big Magic, Zee Action and Zee Classic, to address possible anti-competition concerns arising out of the proposed ZEEL and SPNI merger. ZEEL had also received approvals from the Bombay Stock Exchange and National Stock Exchange in July, 2022.
Following that, the majority of ZEEL shareholders also supported ZEEL and SPNI merger. In accordance with the order dated August 24, 2022, passed by the NCLT Bench at Mumbai when ZEEL called the meeting of equity shareholders on October 14, 2022 the proposed ZEEL and SPNI merger was supported by 99.99% of the equity shareholders of ZEEL. The merger is pending for approval of the NCLT Bench at Mumbai, subject to applicable regulatory and other approvals.
- Merger of PVR with INOX:
The merger plan involving PVR Limited (PVRL) and Inox Leisure Limited (INOXL) was accepted by the boards of directors of PVRL and INOXL in March 2022. In a statement with the regulatory authorities, PVRL stated that it would seek the consent of equity shareholders for the INOXL merger at a meeting on October 11, 2022. In the meeting, 99.9986% of the votes were cast in favour of the merger, while 0.0014% were cast against it.
In accordance with the merger plan, INOXL shareholders will receive PVRL shares in return for INOXL shares at the agreed-upon share exchange ratio viz. 3 shares of PVRL are exchanged for 10 shares of INOXL in this share exchange ratio.
After the merger, together with the current promoters of PVRL, the promoters of INOXL will become co-promoters in the merged entity. According to the regulatory filing made on March 27, 2022, the Board of Directors of the merged entity would be reconstituted with a total board strength of 10 members upon the merger’s implementation and equal representation for both promoter families on the Board with 2 board seats each.
The merged entity will be known as “PVR INOX,” with the current PVRL and INOXL screens maintaining their separate brands. With a network of more than 1,500 screens, the combination of two of India’s top movie theatre businesses would provide customers an unmatched viewing experience.
The proposed merger between PVRL and INOXL is pending before the NCLT Bench at Mumbai and the same has been posted by the NCLT Bench at Mumbai for a final hearing on January 12, 2023. The NCLT Bench at Mumbai has already received detailed reports on the proposed merger from all the regulatory authorities, including the Regional Director, Registrar of Companies, and Official Liquidator, among others.
However, recently the non-profit public policy and advocacy group Consumer Unity & Trust Society (CUTS) moved the NCLAT Bench at Delhi against the CCI order on the merger deal as the CCI rejected CUTS’ complaint against the merger in September, 2022, alleging that their entering into anti-competitive agreement would cause an appreciable adverse effect on competition (AAEC) for the “exhibition of films in multiplexes and high-end single-screen theatres in different cities.” CUTS’ matter has been posted by the NCLAT Bench at Delhi for further hearing on February 9, 2023.
- Acquisition of Ambuja & ACC Cements by Adani:
The transaction with Swiss company Holcim and an open offer were finalised in September 2022 by the Adani family through their special-purpose vehicle Endeavour Trade and Investment Ltd. (ETIL). In accordance with SEBI regulations, the transaction involved the open offer and the acquisition of Holcim’s stakes in Ambuja Cement Limited (ACL) and ACC Limited (ACCL).
The Holcim equity and open offer consideration for ACL and ACCL total USD 6.50 billion, making this the largest acquisition by ETIL and the largest M&A deal in India’s history for infrastructure and materials. After the purchase, ETIL will own 56.69% of ACCL and 63.15% of ACL, respectively (of which 50.05% is held through ACL).
With a vast depth of manufacturing and supply chain infrastructure, the two ACL and AACL are among the strongest in India. They have 14 integrated units, 16 grinding units, 79 ready-mix concrete factories, and more than 78,000 channel partners spread out over India.
Adani Group is the second-largest cement company in terms of market share after acquiring ACL and ACCL for a total market value of INR 1,51,621.47 crore. With a market value of approximately INR 1.87 lakh crore, Ultratech Cement is now the biggest company.
- Acquisition of Exide Life Insurance by HDFC Life:
HDFC Life Insurance Company Ltd. (HDFCL), the life insurance subsidiary of mortgage player HDFC, purchased 100% (one hundred percent) stake in Bengaluru-based Exide Life Insurance Company Ltd. (ELICL) from Exide Industries for INR 66,870,000,000/- (Rupees Six Thousand Six Hundred and Eighty Seven Crore only). Notably, this is the first M&A deal in the Indian life insurance sector. HDFCL intends to expand its business in Tier II and Tier III with this acquisition.
The entire transaction, which began with the announcement of the agreement in September 2021 and ended with the merger in January 2022, took less than 14 months to complete. HDFCL completed its acquisition of ELICL in January 2022, and a day after insurance regulator IRDAI’s final approval, HDFCL completed its merger in October 2022. HDFCL had also received final approval from the NCLT Bench in Mumbai for the merger of ELICL into HDFCL.
Because of the combination, the customers from HDFCL and ELICL will have access to a greater range of products and services. The merged entity being an organisation that is bigger, more powerful, and has complementary business models, a broader geographic presence, and a strong corporate culture will be advantageous to its employees and distributors too.
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