M&A acts as a tool for the companies to solve market gaps, resource gaps, growth gap and so many others. Companies have to carry out a thorough gap analysis before any M&A actions. Only after a careful review of the portfolio, companies can decide to merge or sell their portfolios. Such decisions are an important part of entering new growth trajectories. The year 2018 was a very active year in the sense of mergers and acquisitions in India. The $16 billion acquisition of Flipkart by Walmart was the biggest in terms of money involved.
If we look close to all the M&As of the past, we can see that all of them were either driven by compulsion or led by opportunity. Following are the few such opportunities and compulsions that are going to affect the M&A trends for the year 2019.
The Election Year
2019 is the general election year in India. Normally, the election years will be witnessing huge amounts of public spending and better cash flow in the rural economy. It usually creates a need for funding in the corporates. However, the unsolved liquidity crisis in the banking and NBFC sector has made sure that M&A transactions led by private equity players will be keep growing. Along with that, the National Company Law Tribunal will be putting stressed assets on a sale this year. It will further expand the trend of channelizing M&A through private equity.
Global Political Developments
The global political developments are going to affect the Indian economy more than ever. The China-US trade war has already brought alteration to the Indian equation. In the past years, American companies have been aggressively acquiring Chinese companies. Due to the changed scenario, these US companies will have to find another market for business development by M&As. India has already proven its potential and these companies are expected to lead M&As for this year in the country.
The Transition in Automobile Sector
The major players in the automobile are found increasing their manufacturing capacity. It will soon result in the consolidation of multiple companies. This sector is also expected to witness some technology-driven acquisition. The gradual adaptation to electronic vehicles is taking place all over the world. Various companies are expected to join together to deal with this transition and the need for technology effectively.
Rising service cost in Banking Sector
Three nationalized banks of India, Bank of Baroda, Dena Bank and Vijaya bank had merged recently. The rising service cost was one of the major reasons behind this merger. This policy is expected to continue through 2019. Those banks who don't have any distinguishing elements will be forced come together. So, more frequent consolidations can be expected in the banking sector this year.
The speciality and bulk chemical sector is also predicted to witness multiple M&As this year due to the aggressive capacity expansions taking place in the country. Along with many others, all these facts are expected to bring more M&As to the Indian economy this year.