M&A and Capital Raising Outlook S U R V E Y A survey by YES SECURITIES (INDIA) LIMITED, a wholly owned subsidiary of YES BANK LTD.

Transcription

1 M&A and Capital Raising Outlook S U R V E Y A survey by YES SECURITIES (INDIA) LIMITED, a wholly owned subsidiary of YES BANK LTD.

2 M&A and Capital Raising OUTLOOK SURVEY 2017

3 Introduction Over the past years, India has retained its position as the fastest growing economy in the world, basis its strong domestic fundamentals, despite a weak global economic backdrop. Supporting the positive investment outlook have been factors such as improved inflationgrowth mix, favorable external sector ratios and fiscal prudence. The government has maintained its unambiguous focus on raising medium and long-term growth potential through programs such as Smart Cities, Make in India, Start-up India and Digital India. Adding to this are the structural bearings of India s growth story, which remain intact, including young demographics, abundant labor, high intellectual, technical and engineering skills, and large consumer base. While growth momentum may have moderated after late-fy17 on the back of demonetization-induced liquidity shortage and GST-related uncertainty, these must be viewed as short term disruptions in return for longterm gains. In FY18, we continue to expect GDP to recover to 7.4%, supported by steady consumption and gradual revival in investments. Some recovery in exports amid support from incremental recovery in global GDP can also be expected, with the IMF recently raising its 2017 growth forecast to 3.5% (2016: 3.1%) on the back of higher growth in developed economies. However, headwinds in the form of global trade protectionism, geopolitical tensions and financial market gyrations continue to be downside risks. Even as a majority of domestic indicators have held well, sluggish private sector capex and high corporate debt are some of the key issues that remain unresolved. FY17 saw initiation of deleveraging in some sectors driven by asset sales- a preference for buy vs. build - in a scenario of subdued domestic and global macros. With consolidation rather than creation being the need of the hour, the past year witnessed a significant increase in M&A activity involving domestic assets of nonfinancial companies with deals amounting to INR 1.4 lakh Cr (Previous: INR 0.5 lakh Cr). The weakest links have begun to taper with share of weak companies in debt (% of total debt) declining to 14.5% as of Sep-16 (Sep-15: 25%). Going further, we expect this trend to gain more traction in FY18. This view has been re-affirmed by the respondents of our M&A & Capital Raising Outlook Survey filled by 124 business leaders across industry sectors with an attempt to gauge the future outlook of corporates for strategic investments and raising capital in the next 12 months. A significant majority (65%) of the respondents have voted in favor of reacting to an opportunity of a M&A transaction over the next year- as they consolidate on India s existing strengths of rising consumer demand and improving economic growth. M&A, PE fund-raising and capital market activity expected to gather pace in the coming year. Pg. 1

4 M&A and Capital Raising OUTLOOK SURVEY 2017 Pg. 2

5 Key Findings Approximately * of the respondents plan to close atleast one M&A transaction in the next 12 months. 23%* of the respondents are looking to evaluate a business in foreign market in the next 12 months. Interest is in large as well as smaller bolt-on acquisitions. Divestments remains a key strategy, with 16%* of the respondents mentioning divesting a business unit in the next 12 months. Respondents believe that M&A, PE fund raising and capital market activity will be higher in next 12 months compared to last 12 months. * Total no. of respondents = 124 Pg. 3

6 M&A and Capital Raising OUTLOOK SURVEY 2017 Perspective Mergers & Acquisitions React to an M&A Opportunity? % 66% No Yes Two-third of the respondents said that they would react to an opportunity and initiate a Mergers & Acquisitions deal in the next 12 months as compared to last 12 months. In line with the market scenario, a significant majority of respondents have voted in favor of M&A transactions over the next year % 82% 82% 75% 7 56% 2 YES Pharma, Healthcare & Life Sciences Agribusiness, food & allied services Technology & Communication Media & Entertainment Infrastructure, Power & Utilities Manufacturing Consumer Goods/Retail Education & Social Infrastructure Business leaders from the Pharma, Healthcare & Life Sciences sector expressed maximum interest with large chains keen to acquire regional players. It is closely followed by Agribusiness, food & allied services and Technology & Communication showing that leaders are open to M&A if the right opportunity presents itself. Pg. 4

7 Attitude towards Large Transformational Deals % No 33% Yes Due to the inherent strategic and execution risks that a transformational deal entails, potential acquirers seem to be cautious at the present time VIKAS DAWRA, Senior President & Head, Investment Banking YES SECURITIES (INDIA) LIMITED Only 33% respondents said that they are looking at acquiring a business(s) major strategic, transformational deal, in the next 12 months as compared to last 12 months. YES % 36% 3 27% 9% Consumer Goods/Retail Pharma, Healthcare & Life Sciences Education & Social Infrastructure Media & Entertainment Manufacturing Infrastructure, Power & Utilities Technology & Communication Agribusiness, food & allied services of respondents from Consumer Goods/Retail are interested in large transformational deals. Pg. 5

8 M&A and Capital Raising OUTLOOK SURVEY 2017 PERSPECTIVE MERGERS & ACQUISITIONS Bolt-on Acquisition No Yes Overall, respondents said that they would pursue bolt-on acquisitions in the next 12 months as compared to the last 12 months % 39% 38% 36% YES Pharma, Healthcare & Life Sciences Technology & Communication Infrastructure, Power & Utilities Consumer Goods/Retail Education & Social Infrastructure Manufacturing Media & Entertainment Agribusiness, food & allied services With the signs of recovery from the short term disruption caused due to demonetization, business leaders from Pharma, Healthcare & Life Sciences () have showed the maximum interest in pursuing bolt-on acquisitions closely followed by Technology & Communication (45%). Pg. 6

9 Interest in Divestment % No 16% Yes Only 16% respondents expressed interest in divesting any business unit in the next 12 months as compared to last 12 months, while majority of respondents (84%) said that they are not interested in divestment. YES % 2 18% 18% 13% 8% Infrastructure, Power & Utilities Consumer Goods/Retail Agribusiness, food & allied services Technology & Communication Media & Entertainment Manufacturing Education & Social Infrastructure Pharma, Healthcare & Life Sciences Divestment strategy was more visible in Infrastructure, Power & Utilities (28%). Increased investor confidence due to a series of policy reforms by the Government may have generated interest among the companies to divest in order to deleverage balance sheets and maintain cash flows for investments in core businesses. Pg. 7

10 M&A and Capital Raising OUTLOOK SURVEY 2017 PERSPECTIVE MERGERS & ACQUISITIONS Single or Multiple Acquisitions? % 47% 1% 0 1 to 4 more than 4 The respondents are almost equally divided on whether they plan to close any M&A transactions in the ensuing 12 months, with 47% of the respondents stating that they plan to close 1-4 transactions % 53% 45% 44% 27% YES Pharma, Healthcare & Life Sciences Consumer Goods/Retail Infrastructure, Power & Utilities Media & Entertainment Technology & Communication Manufacturing Education & Social Infrastructure Agribusiness, food & allied services With market trends of expansion of healthcare services in tier 2 and 3 cities and domestic consolidation in branded generics, the respondents from the Pharma, Healthcare & Life Sciences sector (63%) expressed the maximum interest in closing atleast one M&A transaction. Pg. 8

11 Foreign Acquisition % 23% Our study finds out that only 23% of the participating business leaders are open to acquisitions in the foreign markets in the next 12 months as compared to the last 12 months. No Yes Build or Buy? % Less than 1 26% 3% 5% Over India possesses the right ingredients sound macros and a stable political environment while treading on a path of sustained reforms. I am confident that this will allow India to further solidify its position from one of the preferred destinations for investment to THE most coveted economy pivoted on its strengths of a young workforce, technological capabilities and growing consumerism. SHUBHADA RAO, Group President & Chief Economist, YES BANK Ltd. To the build or buy debate, two-third of the respondents expect less than 1 of their company s growth to come from acquisitions as compared to organic growth in the next 12 months as compared to the last 12 months, indicating that even though leaders are excited about M&A activities, they expect the results to be reflected slowly. Pg. 9

12 M&A and Capital Raising OUTLOOK SURVEY 2017 PERSPECTIVE MERGERS & ACQUISITIONS Drivers for Acquisition - Rising Customer Demand & Improving Economic Growth % No 42% Yes Overall 42% respondents feel that rising customer demand & improving economic growth can be the driving factor for them to pursue an acquisition in the next 12 months as compared to the last 12 months. YES % 45% 38% 36% 31% Consumer Goods/Retail Education & Social Infrastructure Pharma, Healthcare & Life Sciences Infrastructure, Power & Utilities Agribusiness, food & allied services Media & Entertainment Technology & Communication Manufacturing Due to changing consumer lifestyles and increased disposable income, participating leaders from Consumer Goods/Retail (), Education & Social Infrastructure () anticipate that rising customer demand and improving economic growth will drive the M&A and capital raising market. Pg. 10

13 Market Sentiments Overview Business leaders have a positive outlook towards M&A, PE fund raising and Capital Market activity for next 12 months, as they are expected to gather pace compared to last 12 months. Stable Increase 32% 54% With a series of structural reforms by the Government leading to increased investor confidence in the Indian market, 54% of the participating business leaders anticipate that M&A activities in the overall Indian market will increase in the next 12 months, compared to the last 12 months Decrease 14% Stable Increase 38% 44% 44% of the participating business leaders anticipate that PE fund raising activity in the overall Indian market will increase in the next 12 months, compared to the last 12 months indicating that Government reforms, stable currency with a decreasing interest rate, young population and high quality entrepreneurs will attract 1 more investments into the country. Decrease 18% Stable Increase 31% 52% In addition to M&A and PE activities, 52% of the participating business leaders anticipate that Equity Capital Market activity in the overall Indian market will increase in the next 12 months, compared to the last 12 months Decrease 16% Business leaders are clearly bullish on capital market activity over next 12 months. They believe rising economic growth would lead to corporates tapping capital markets for growth capital. AMISHI KAPADIA, Senior President & Head, Merchant Banking, YES SECURITIES (INDIA) LIMITED 1 Private Equity Review 2016 by KPMG ( Pg. 11

14 M&A and Capital Raising OUTLOOK SURVEY 2017 About the Survey YES SECURITIES conducted an online survey among 124 business leaders from a cross section of industry sectors to gauge the appetite as well as the future outlook of corporates for strategic investments and raising capital in the next 12 months. Business leaders including Managing Directors, CEOs, CFOs, Directors of Finance, and Finance Heads from sectors like Infrastructure, Power & Utilities (32%), Manufacturing (29%), Agribusiness, Food & Allied Services (9%), Technology & Communication (9%), Media & Entertainment (7%), etc. participated in the survey. 9% 4% 4% Agribusiness, food & allied services Consumer Goods/Retail Education & Social Infrastructure 32% 29% 7% Infrastructure, Power & Utilities Manufacturing Media & Entertainment 6% 9% Pharma, Healthcare & Life Sciences Technology & Communication Disclaimer - YES BANK Limited ( YBL ) and YES SECURITIES (India) Ltd ( YSL ) takes no responsibility or makes no guarantees about the accuracy of the survey results. Please do not rely on the survey to provide the definitive outcome other than that they reflect the choices of the users who participated. The survey is not scientific and reflects only the opinions of those that chose to participate and not the opinions of YBL, YSL and/or its affiliates. The survey does not constitute investment or any kind of advice and the results should not be relied upon in making any investment decisions. All rights reserved. No part of this survey or the results may be reproduced or disseminated in any manner without the prior written permission of YBL and/or YSL. Pg. 12

15 About YES SECURITIES YES SECURITIES, a wholly-owned subsidiary of YES BANK, India s fifth largest private sector bank, is one of the leading financial advisors in India. It offers a gamut of services including investment banking, merchant banking, institutional sales and trading and equity research. The firm has a robust track record of over 250+ successful deal closures in investment banking and capital markets transactions and is consistently recognized by leading domestic and global league tables. YES SECURITIES is a registered category one merchant banker with SEBI and a member of NSE and BSE. YES SECURITIES executed 24 marquee transactions during Jan - Dec, 2016, covering M&A, Private Equity placement and Capital Markets transactions for its clients across sectors.

16 The Team VIKAS DAWRA Senior President & Head, Investment Banking, YES SECURITIES (INDIA) LIMITED AMISHI KAPADIA Senior President & Head, Merchant Banking, YES SECURITIES (INDIA) LIMITED YES SECURITIES (INDIA) LIMITED Registered Office: IFC, Tower I, 6th Floor, Elphinstone Road, Senapati Bapat Marg, Mumbai