india market update for quarter ended september 2017 update - quar… · india market update for...

India Market Update for quarter ended September 2017

:: THE KNAV DEAL WATCHER :::: THE KNAV DEAL WATCHER ::

October 6, 2017

Dear Clients and Associates:

We are pleased to present to you the KNAV India Market Update for the quarter ended September 2017.

This update includes an analysis of private equity/venture capital investments and the key M&A deals in the quarter ended September 30, 2017.

Key highlights/updates

• The quarter had around 226 private equity/venture capital investments rounding up to a value of USD ~6.61 bn. Some notable deals include:o Flipkart’s USD 2.5 bn fund raising from SoftBank; &o DLF Cybercity’s fund raising of USD 1.38 bn from GIC.

• The quarter had around 101 M&A transactions rounding up to ~USD 5 bn. The prominent deals are:o Volcan Investments acquiring an additional ~7.57% stake in Anglo American for USD 1.69 bn: &o Cisco’s acquisition of Springpath for USD 320 mn.

A detailed analysis and a selected listing of a few notable deals are provided in this update.

Do share your comments and/or feedback on [email protected]

Vaibhav Manek

Vaibhav ManekPartner- Advisory services

Suparna Dua

Suparna DuaPartner - Investment banking

mailto:[email protected]

© 2017 KNAV All rights reserved

Private equity/venture capital investments

Analysis of a few transactions

Mergers & acquisitions

Developments in the Indian payments sector

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6 Contact us

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The structure of this document

7 About us & credits

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Sector trends4


Private equity/venture capital investments

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Of the total ~174 deals in this quarter, the highest number of deals were in the technology sector (38 deals), followed by marketplace (18 deals) and finance (13 deals).

Of the total USD ~3.64 bn invested in this quarter, the highest amount of funds were invested in the e-tail sector (USD ~2.5 bn), followed by travel (USD ~352 mn) and marketplace (USD ~218 mn).

The following charts provide a sector-wise analysis of private equity/venture capital investments in theconsumer internet space in terms of number of deals and transaction value for the quarter.

12 12 13

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108

18

5 59

38

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Number of deals

52

2,507

218 71 70

189 352

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500

1,000

1,500

2,000

2,500

3,000

Transaction value in USD mn

Consumer internet | PE/VC deals

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These charts provide a sector-wise analysis of private equity/venture capital investments in the brickand mortar space in terms of number of deals and transaction value for the quarter.

Of the total ~52 deals in the quarter, the highestnumber of investments were in the finance sector (9deals), followed by food & beverages, healthcare andreal estate (8 deals each) & manufacturing (4 deals).

Of the total USD ~2.97 bn invested in the quarter, thehighest amount of funds were invested in the realestate sector (USD ~ 1.75 bn) followed by finance (USD~841 mn) and healthcare (USD ~278 mn).

98 8

43 3

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8

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Number of deals

Brick and mortar | PE/VC deals

6

841

278

43

1,753

30 -

500

1,000

1,500

2,000

Transaction Value in USD mn


Investee Sector InvestorInvestment value

(USD mn)

E-tail SoftBank 2,500

Real estate GIC 1,380

FinanceCDC group Plc, Multiples

Alternate Asset Management, others

260

Travel

SoftBank, Sequoia Capital India, Lightspeed Venture

Partners, GreenoaksCapital, Hero Enterprise

250

Top private equity | venture capital deals

7

Finance General Atlantic LLC 240


Investee Sector InvestorInvestment value

(USD mn)

Healthcare KKR 200

FinanceTPG Growth, Vallabh

Bhansali, QRG Enterprises, Treeline

161

Various projectsReal estate Piramal Finance 156

FinanceOverseas Private Investment

Corporation (‘OPIC’)150

Real estateBrookfield Asset

Management 125

Top private equity | venture capital deals (cont…)

Various projects

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Mergers & acquisitions

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• Technology retains #1 position with 18 dealsSome of the highlights in this sector deals were: Cisco’s acquisition of Springpath, Altran’s acquisition of GlobalEdge and acquisition of Datawave and Alpha Insight by HCL Technologies.

• Professional services is placed at #2 position with 11 dealsSome of the prime deals in this sector were: DriveU’s acquisition of Zuver and acquisition of tax and risk advisory & M&A practice of BMR Advisors by Deloitte India and KPMG respectively.

• Finance is placed at #3 position with 10 dealsSome of the deals in this sector were: Merger of National Multi Commodity Exchange (‘NMCE’) and Indian Commodity Exchange (‘ICEX’), Avendus Group’s acquisition of Ocean Dial and acquisition of Intec Capital’s loan portfolio by Essel Finance Business Loans Ltd.

Professional Services

Finance

Technology

Top M&A sectors

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The ensuing charts provide an analysis of the M&A transactions in the quarter of the number of deals and the transaction value.

There were ~101 M&A deals in this quarter. Thetechnology sector bagged the highest number of deals (18deals) followed by professional service (11 deals) andfinance (10 deals).

In the quarter, the total transaction value of all dealsamounted to ~USD 5 bn compared to ~USD 1.5 bn in theprevious quarter. In terms of the transaction value, thehighest M&A deals were witnessed by mining sector(USD 1.69 bn) followed by oil and gas (USD 995 mn) andtechnology (USD 396 mn).

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5 53

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Number of deals

117281 227

339104 78

1,690

995

101 30

396

109

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1200

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Transaction value in USD mn

Sector-wise analysis | M&A deals

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• Technology sector showcased 18investments contributing 18% of thetotal deals reported in the quarter,across various technology subsectorslike IT & ITeS, artificial intelligence,Internet of Things (‘IoT’), media, etc.

• 7 investments in IT & ITeS lead thetechnology sector.

• There have been 4 investments and 3investments each in the data analyticsand Internet of Things sub-sectorsrespectively.

• Investments in upcoming advancedtechnology sector like data analyticsand media technology showcases thematurity of the investors as well astheir risk appetite.

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4

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7

2

Technology-subsector investments

Technology ArtificialIntelligence

Technology Data analytics

Technology Internet ofThings

Technology IT & ITes

Technology Media

Technology space as a leading sector attracting investments

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• Some notable deals citing competitive advantage were: - Yatra’s acquisition of Air Travel Bureau; &- Sun Pharma increasing its stake to majority in Zenotech.

• Deals citing strategic entry/ restructuring strategy were:- DriveU’s acquisition of rival Zuver; &- Wilmar International acquiring majority stake in Shree Renuka Sugars.

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33

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Backward/ forward integration

Competitive advantage

Consolidation

New Business Model

Product portfolio enhancement

Restructuring strategy

Strategic entry

Talent acquisition

Technology Access

0 5 10 15 20 25 30 35

Reasons for M&A deals

Reasons for various M&A deals

• There are several reasons for companies to venture into inorganic growth strategies.

• In this update, we have analysed the major reasons cited by the companies for having an M&A transaction, graphically shown above.

• Product portfolio enhancement was the most cited reason, with 33 out of 101 deals justifying the same. Some notable deals in this aspect are:- BookMyShow’s acquisition of Burrp; &- PayTM’s acquisition of Insider.in.

• Competitive advantage (31 deals) and strategic entry & restructuring strategy (10 deals each) were the second and third most frequently used justification for the deals.

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Target Acquirer SectorTransaction value

(USD mn)

~7.57% stakeVolcan Investments Mining 1,690

KG Basin Block

Oil and Gas 995

Technology 320

24 road projects

Real estate 250

Stake of IDFC AlternativesPower 220

Top M&A deals for the quarter

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Target Acquirer SectorTransaction value

(USD mn)

Food and beverages 150

Food and beverages 120

Automobile 117

Chennai Hotel

Travel 109

Manufacturing 93

Apeldoorn Flexible Packaging Holding BV

Top M&A deals for the quarter (cont…)

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Analysis of a few transactions

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• Mars Inc, best known for its chocolates and pet foodbusiness, has acquired the parent of Indian foodmaker Tasty Bite for ~USD 150 mn.

• Mars has a broad portfolio of brands which includechocolate brands such as Snickers, Bounty, Galaxy andpet food brands like Pedigree and Royal Canin.

• Tasty Bite’s portfolio includes a wide range ofvegetarian offerings, including Indian and Asianentrees, spice and simmer meal kits, and organic riceand lentils.

• With this acquisition, Mars plans to expand its all-natural vegetarian offerings in the US to cater toIndian and vegan diaspora.

• Mars will also benefit from Tasty Bite’s strong productdevelopment pipeline, flavour expertise and strategicsourcing of quality ingredients throughout itsportfolio.

Deal analysis | Mars to buy majority stake in Tasty Bite

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• Amazon has bought 5% stake in Indian brick and mortarmulti brand retail chain Shoppers Stop Ltd for ~USD 27.77mn, marking its first investment in a publicly tradedIndian retailer.

• This deal forms part of Amazon’s strategy to increase itspresence in physical brick and mortar stores in line withits earlier acquisition of Whole Foods Inc.

• While Shoppers Stop will have an exclusive store on theAmazon marketplace, it will create exclusive Amazonexperience centres across its physical outlets.

• This deal will help the Indian company boost its revenueand add 25 percent more stores, while the US firm willexpand its reach into smaller towns in the world’ssecond-most populated nation.

• Amazon has allocated a total of USD 5 bn for expansion inIndia, in a bid to counter local competition after itsdismal performance in China.

• It has also entered into a joint venture with Ashok PatniGroup to improve its own customer support function andcomplement its investment in Shoppers Stop.

5%

Deal analysis | Amazon buys 5% stake in Shoppers Stop

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• Mahindra & Mahindra has entered into a strategic alliancewith US car major Ford Motor Company to explorecooperation in the sphere of products, technologies anddistribution.

• This deal will improve Ford’s reach within India and globalemerging markets as well as Mahindra’s reach outsideIndia.

• This is the second time when the two of them have cometogether - the first being in 1996-97 for the purpose oflaunching Ford Escort in Indian markets.

• Fords’ focus on research and development budget, at USD7.3 bn last year, is equivalent to more than two decades ofMahindra's expenditure on that front and is expected togive a huge benefit to this venture.

• This deal comes at a time when the government hasreaffirmed its commitment to switching all vehicles inIndia to battery power by 2030. Courtesy: Telegraph India

Deal analysis | M&M ties up with Ford Motors to manufactureelectric vehicles

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Sector trends

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Sector trends | Technology

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• Technology sector has been among the top sectors interms of number of deals consistently over the last fewquarters.

• The M&A transactions in technology show a rebound.

• Retrenchment in the bigger IT companies showcases atemporary shift towards internal restructuring ratherthan actively exploring inorganic growth opportunities.

• Despite the interim slowdown, we expect IoT businessmodels with disruptive ideas to scale significantly overtime.

• Some notable deals include investment of USD 360 mnby Warburg Pincus in Tata Technologies and acquisitionof Appirio Inc. by Wipro for USD 500 mn.

• With India emerging as the third largest tech start-uphub globally, transactions in this space are expected toincrease significantly in the upcoming quarters.

618

13835

396322

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444

189

0

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FY17 Q3 FY17 Q4 FY18 Q1 FY18 Q2

Transaction value in USD mnfor M&A and PE/VC

M&A PE/VC

13 18 14 18

6551 54

39

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20

40

60

80

FY17 Q3 FY17 Q4 FY18 Q1 FY18 Q2

Number of PE/VC and M&A deals in last 4 quarters

M&A PE/VC


Sector trends | Education

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• While the number of deals have been stable over the lastfew quarters, the aggregate transaction value has shown anincrease in the education sector.

• The investment trend in this sector shows increasing interestin online tutoring platforms such as Byju’s and Unacademy tohelp them leverage their expertise in creating effective tech-enabled learning programs for new and existing markets.

• Some significant deals in this sector include a USD 35 mnfund raising by Byju’s from Tencent Holdings and a funding ofUSD 20 mn by Gaja Capital in Kangaroo kids education.

• Some factors creating a sustainable market for education toflourish in India include:o India’s population: 18%-20% of the population in India fall

in the age group of 7 to 14 years;o Impetus to Digital India: use of digital medium providing

customization (language, convenience of time & place); &o Focus on education as a CSR activity by large global and

Indian conglomerates.

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1512 12

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FY17 Q3 FY17 Q4 FY18 Q1 FY18 Q2

Number of PE/VC deals in last 4 quarters

PE/VC

3643

18

52

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40

60

FY17 Q3 FY17 Q4 FY18 Q1 FY18 Q2

Transaction value in USD mn. for PE/VC

PE/VC


Developments in the Indian payments sector

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• Google’s newly launched ‘Tez’ is a multi-layeredapplication, offering a comprehensive set of paymentoptions and support for Unified Payments Interface(‘UPI’).

• ‘Tez’ also supports consumer payment services likePayTM and MobiKwik and has partnered with vendors likePVR Cinemas, redBus among others.

• Globally, Google has seen limited success in mobilepayment systems like Google Wallet and Android Pay, it isexpected to give tough competition to the Indian players,such as PayTM, who has a ~57% market share.

• This entry adds impetus to the government’s efforts toget people to shift to digital money, given that Androiddominates India’s smartphone market with a marketshare of 97%.

• Post demonetization in 2016, there has been rapidescalation and growth in the payments sector withestimates putting the market at USD 500 bn by 2020.

Google’s ‘Tez’ entry

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• The Central government is considering a proposal to introduce acryptocurrency similar to Bitcoin, several months afterdeliberations over the legalisation of cryptocurrencies in India.

• Earlier this year, RBI had issued a warning to all cryptocurrencyusers about the risk pertaining to Bitcoin transactions.

• However, in July 2017, the Indian government started mullingover the implementation of Know Your Customer (‘KYC’) norms toensure safe transactions of cryptocurrencies.

• Rumoured to be named as ‘Lakshmi’, the cryptocurrency will fallin the domain of the Reserve Bank of India (‘RBI’) and shallrequire amendment of some Acts such as the Currency Act,making it a time-consuming process.

• This move comes at a time when several Indian banks are tryingblockchain as a technology which promises to give the benefit offaster, cheaper and simplified transactions.

• Cryptocurrencies serve as a vital tool in India to drive low costsecure transactions that cannot be corrupted, stolen or devalued.

• Other countries like China, Russia, and Estonia are also said to beconsidering having national cryptocurrencies.

Government considering the introduction of India’s own cryptocurrency

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Contact us

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Mumbai

Vaibhav Manek

E: [email protected]

Tel: +91 22 6164 4800

New Delhi

Monish Chatrath


Tel: +91 11 4106 9400

Atlanta

Atul Deshmukh


Tel: +1 678 584 1200

Amsterdam

Dr Henk Burke


Tel: +312 066 44 054

Geneva

Claude Rey


Tel: +41 24 466 77 27

London

Amanjit Singh


Tel: +44 20 3617 6200

Lyon

Martine Chabert


Tel: +33 478 182 694

Singapore

Wayne Soo


Tel: +65 6846 8376

Toronto

Harshad Parekh


Tel: +1 416 229 1411

Hyderabad

Dayaniwas Sharma


Tel: +91 40 2324 0700

Bangalore

Shrenik Kataria


Tel: +91 80 4113 1896

Contact us

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About KNAV

KNAV refers to one or more of KNAV International Limited (KNAV International); a not-for profit, non-practicing, non-trading corporation incorporated in Georgia; USA and its association of member firms, each of which is a legally separate and independent entity.

KNAV International is a charter umbrella organization that does not provide services to clients. Services of audit, tax, valuation, risk and business advisory are delivered by KNAV's independent member firms in respective global jurisdictions. All member firms of KNAV in India and North America are member firms of Allinial Global.

Website - www.knavcpa.com

Reach us

If you want to know more about KNAV or its services please contact Mr. Vaibhav Manek at [email protected]. We will be glad to hear from you.

Suggestions/Feedback

For suggestions/feedback on this newsletter please contact Ms. Suparna Dua at: [email protected]

Editorial credits

Deals Snapshot Editorial Akshay Mahalaxmikar, Hardik Adenwala and Urja Maloo–– KNAV Mumbai

The source of our data is our market research, publicly available reports and press items, and independent databases. While KNAV has made reasonable endeavors to ensure that the information provided in this newsletter is accurate and up to date as at the time of issue, KNAV shall not be liable for any errors, inaccuracies or delays in the information, nor for any actions taken in reliance thereon, nor does it endorse any views or opinions. KNAV disclaims all warranty, express or implied, as to the accuracy or completeness of any of the content provided, or as to the fitness of the content for any purpose to the extent permitted by law. The content herein is not appropriate for the purposes of making a decision to carry out a transaction or trade and does not provide any form of advice (investment, tax, legal) amounting to investment advice, nor make any recommendations or solicitations regarding particular financial instruments, investments or products, including the buying or selling of securities. KNAV has not undertaken any liability or obligation relating to the purchase or sale of securities for or by any person in connection with this document.

This newsletter is intended only for the individuals addressed. The information contained in this newsletter is privileged, confidential, and may beprotected from disclosure; please be aware that any other use, printing, copying, disclosure or dissemination of this communication may be subject tolegal restriction or sanction. Copyright and any other intellectual property rights in its contents are the sole property of KNAV.

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About KNAV & credits

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