M&A deals double, but execution holds the key for investors: Crisil Ratings
India Inc’s annual M&A volumes have more than doubled since fiscal 2017 as companies pursue faster growth, market expansion and new capabilities. Crisil Ratings found two-thirds of major debt-funded acquisitions broadly met expectations, while integration and regulatory challenges hurt others.
Mergers and acquisitions (M&As) have become a pivotal growth strategy for Indian companies, with annual deal volumes more than doubling since fiscal 2017, according to Crisil Ratings. This surge is driven by companies seeking to accelerate growth, expand market reach, and acquire capabilities that would otherwise take years to develop organically, as highlighted by the ratings firm.
However, for investors, the key to success lies in execution, not just the number of deals. Out of 100 large debt-funded M&As reviewed by Crisil, two-thirds met expectations, delivering 20-80% scale expansion within 1-2 years, broader geographic reach, and margin improvements. Successful deals often resulted in reaffirmed or upgraded credit ratings.
The remaining one-third struggled to meet anticipated outcomes, with integration challenges accounting for about half of these cases, along with regulatory delays and cross-border execution issues each contributing roughly one-fifth.
The increase in M&A activity is occurring amidst a stronger credit environment. Companies with stronger balance sheets, characterized by moderated organic capital expenditure, lower leverage, and prudent funding, are better equipped to absorb the risks associated with acquisitions. The median net debt-to-EBITDA for Crisil-rated corporates stands at around 1.3 times last fiscal, compared to around 2.4 times in fiscal 2017.
Subodh Rai, Managing Director at Crisil Ratings, noted that Indian corporates are increasingly leveraging M&As to augment growth, expand market access, and acquire capabilities that would otherwise require years of organic development. M&A activity is driven by sector-specific priorities. In the pharmaceutical and healthcare, enterprise technology, artificial intelligence, and consumer sectors, acquisitions are used to bridge technology, talent, and intellectual-property gaps.
Similarly, cement and metals companies are pursuing acquisitions to consolidate their positions, reduce build times, and expedite growth.
Overall, M&As have largely resulted in stable or positive credit outcomes, with around three-fourths of ratings reaffirmed or upgraded following acquisitions. About 60% of acquirers also deleveraged as per plan within two years. However, where outcomes were weaker, common reasons included elevated leverage, slower ramp-up, industry downcycles, and regulatory delays.
Long-term value creation from M&As, Crisil asserts, hinges on disciplined capital allocation, strong execution, timely synergy capture, and continued investment in core capabilities.
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