Private equity investment and mergers and acquisition was subdued in the first five months of 2020 despite the telecom sector attracting investor interest.
While Reliance Jio has attracted investment worth Rs 104,326.95 crore from a clutch of global investors since April, Amazon and Google are reportedly in talks with Bharti Airtel and Vodafone Idea, respectively, for acquiring a stake in these firms.
According to data presented by Pricewaterhouse Coopers at a session on Tuesday, there has been a 41 per cent decline in overall number of deals and a 19 per cent decline in deal value. The total number of private equity investment and mergers and acquisition was 494 between January and May 2020, down 41 per cent from last year.
The aggregate deal value in the period was $32.73 billion, down 19 per cent compared with last year.
The situation in the first five months is in sharp contrast to 2019 where during the same period, there were already 837 deals overall, amounting to 45 per cent of the total deals during the entire year.
“While there has been some large trades, which is reflected in deal value growth only going down by 19 per cent, the deal volumes going down by 41 per cent show that the market at the moment is shallow and investors are taking a bit of pause,” according to Sanjeev Krishan, partner & leader – deals, PwC India.
The focus during the period has shifted to certain sectors such as telecom, pharmaceutical and technology firms as these have a wider access to a large number of consumers and would play a crucial role in driving demand and business in the Covid-19 pandemic and the resulting lockdown.
According to industry estimates, 12-18 months is almost 30 per cent of the time that private equity investors would like to stay invested in a company.
“The focus has been on technology enabled businesses or those which are more resilient to any kind of shocks. If there is a large customer access, it would be extremely valuable at this point which is why the telecom sector has all of a sudden become so attractive,” said Krishan.
Despite the overall market remaining subdued, the overall return expectations are unlikely to see a drastic change because of the high risk premium. Krishnan said that while the overall deal volume will take a hit during the year, there could be more consolidation to scale up business.