Despite the second wave of COVID-19, deal activities rose to 856 deals in 2021, with 20% increase in deal values compared to H1 2020

Delhi: Deal activities set a record with a 42% growth in deal volumes in H1 2021 heralding the much-needed economic recovery. The first half of 2021 recorded 856 transactions aggregating to USD 43 billion with an average deal size of USD 50 million according to Grant Thornton Dealtracker. At the same time, there has been a 20% increase in the deal values compared to H1 2020. The record jump has been triggered by major deals in energy, banking and financial and IT/TeS sectors.

Uncertainty following COVID-19 had cast a gloom in the first half of 2020, however investor interest climbed during the second wave as it was fiscally less disruptive despite its detrimental impact on public health and mobility. Market confidence was restored in H1 mainly due to the rapid normalisation of economic activities and expectations of a post-pandemic boom aided by various reform measures by the government.

Riding on the positive wave, investors are hoping to gain from strong liquidity and a bullish secondary market that witnessed a steep rise in new retail investors. Adding to the 24 initial public offerings (IPOs) worth USD 5.3 billion, online delivery platform Zomato launched its IPO on 14 July. In a strong vote of confidence from the market, the USD 1.3 billion IPO by the platform was fully subscribed on the first day. Moreover, the domestic primary market is all set for major gains in H2 2021 with as many as 30 companies lining up to float IPOs.

“H1 2021 has set an encouraging tone as domestic M&A and PE/VC deal activity has significantly gone up. COVID-19 has accelerated multiple trends - be it digital transformation, the convergence of emerging tech, the emergence of direct-to-consumers trends, or focus on healthier living - these trends have spurred the deal activity. With the vaccination drive gaining momentum and pent-up consumption demand driving growth and economic recovery, we can expect the deal momentum to be strong in H2 2021,” said Shanthi Vijetha, Partner, Grant Thornton Bharat.

Moving away from the uncertainty witnessed in 2020, the high number of deals in H1 2021 translated into higher private equity (PE) deals and mergers and acquisitions (M&A) deals. There was an increase in both deal volumes and aggregate values in M&A and PE deals compared to H1 2020.

Domestic M&A surge
The first half of the year witnessed an upward trend in M&A deals in contrast to H1 2020 when the world came to an abrupt halt owing to the COVID-19 pandemic. While the economy was hit during the second wave and subsequent lockdowns, the work-from-home model, digital payments, online delivery models and e-commerce kept the economic activities afloat. 

H1 2021 witnessed 221 deals aggregating to USD 24.4 billion, 36% higher volumes than 34% recorded in H1 2020. Adani Group has been one of the most active acquirers with the acquisition of five companies above USD 200 million value. Domestic M&A has accounted for 76% of the M&A deal volumes on the back of highest deal volumes over the last 11 years. In contrast cross border has seen lowest deal volumes over the last decade.

The banking and financial services sector emerged as the second-highest contributor to deal values after the energy and natural resources sector in H1 2021, where Adani Group has been the key player. This was due to the Piramal Group’s acquisition of Dewan Housing Finance Corporation Limited for USD 5.1 billion under the Insolvency and Bankruptcy Code. This was also the largest M&A deal during H1 2021.

Tech push in M&A
There were 44 deals amounting to USD 2.5 billion in the IT/ITeS sector making it the most active sector in H1 2021. Key drivers of M&A in this sector have been Wipro’s acquisition of Capco for USD 1.45 billion. H1 also witnessed the world’s largest edtech acquisition with BYJU’s acquiring Aakash Educational Services for USD 1.0 billion. Another major highlight has been Tata Group inking a USD 1.2 billion deal to buy BigBasket, India’s largest e-grocery player.

Record PE deals
H1 2021 witnessed 635 PE deals amounting to USD 18.5 billion compared to 440 deals amounting to USD 17.6 billion in H1 2020. Over 50% of PE and VC investments were attracted by e-commerce, e-gaming, consumer tech, health tech, edtech and fintech sectors. Blackstone’s additional investment into Mphasis, investments into Swiggy, Byju’s, Dream 11, FirstCry, Mesho, Infra.market etc., as well as NIIF’s investment into Manipal Hospitals and multiple PE’s buy-out of Zydus Cadila’s animal health business. Also, the first half of the year witnessed 10 new unicorns.

“Deal momentum continues to be robust in H1 2021 driven by PE and VC deals which are evidently led by new-age sectors such as technology, digital, e-commerce, etc. In my view, these sectors will continue to see an upswing in deals. We have already seen 10 unicorns being created and backed by PE/VC funding and I believe that we will continue to witness this momentum across the digital businesses around health tech, edtech, fintech, social commerce, e-gaming and e-commerce. Capital is pivoting to these new-age businesses and ESG theme will continue to grow bigger in deal themes.” said Raja Lahiri, Partner, Grant Thornton Bharat.

Big ticket IPOs and QIPs
Initial Public Offerings (IPOs) witnessed the second-highest half-yearly volumes and values since 2011 with the USD 5.3 billion from 24 IPOs in H1 2021. In our view, easing norms for start-up companies, minimum public offer and required public shareholdings for large issuers by SEBI, the Indian IPO market is expected to continue with the momentum. Similarly, 21 companies raised qualified institutional placements (QIPs) worth USD 4.2 billion, the highest since H1 2018.