India Inc’s merger plans take a hit

Buyers may take advantage of the crisis and seek lower valuations

The coronavirus pandemic has hit the merger and acquisition (M&A) plans of India Inc hard with the market crash taking a toll on the valuations of most companies.

The unprecedented global ban on flights and self-quarantine after foreign travel are prompting Indian companies to take big decisions on fundraising as well, say bankers. Bankers said some big acquisition opportunities are coming up in India. These include sale of 50 per cent stake by the Centre in Bharat Petroleum Corporation (BPCL), 100 per cent sale in Air India and Reliance Industries (RIL’S) stake sale in its refining and petrochem business to Saudi Aramco.

“Considering that these are cross-border acquisitions with billions at stake, the corona pandemic has come at a wrong time and delayed the timelines,” said a banker closely involved in BPCL’S disinvestment process.

Apart from the big-ticket acqustions, there are several power projects which are being sold by Indian banks to buyers who, in turn, plan to raise funds from overseas. The initial share sale plans of several companies have been put on the backburner.

The bankers are also worried after two top officials of a conglomerate returned from London last week and had to be quarantined in accordance with the health ministry’s guidelines.

M&AS will also slow down as business disruption will lead to an adverse impact on the target company’s financial position. “However, it would be helpful to check whether these are interim ones or more systemic long-term issues that may require sustained focus and redressal,” said Rabindra Jhunjhunwala and Sameer Sah, partners at Khaitan and Company.

Valuations will be hit hard and corporates must be ready as the acquirer will now seek a better price. “Indian businesses, which are mainly family owned, must be ready for a lower valuation. Now, more than ever, it may be a good time to build faith and trust and try to complete the deal at a “fair ” value,” said Jhunjhunwala.