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SKP Investment Chronicle 2015 | 1
Deal Analysis Report
Investment
Chronicle 2015
Issue 1
SKP Investment Chronicle 2015 | 2
© 2016 SKP Business Consulting LLP. All rights reserved.
For private circulation only.
Disclaimer: The Investment Chronicle 2015 summarises the list of deals announced based on information available in the public
domain and the VCCEdge database. For our analyses, we have referred to information from media reports, the Department of
Industrial Policy and Promotion (DIPP), the Reserve Bank of India (RBI) and other government sources.
INVESTMENT CHRONICLE
REPORT TEAM
Saloni Jhaveri
Harshal Choudhary
Raj Vora
SKP Investment Chronicle 2015 | 3
Contents
04 Foreword
06 Executive Summary
09 Deal Landscape Quarter-wise deal trends
Deal breakdowns
Deal street – The Indian terrain
Cross Border Transactions
18 Sectoral Focus Hot sector
Emerging playground
30 SKP Insights Mergers and acquisitions: A winning strategy for paced growth
Financial re-engineering of stressed assets
The start of the start-ups era – Evaluation and prospects
48 Outlook 2016
SKP Insights
The start of the
start-ups era
- Evaluation and
prospects
M&A: A Winning
strategy for
paced Growth
- Case study: Lupin
Limited
Pg 32
Pg 39
Financial
re-engineering of
stressed assets
- SDR Scheme
- Insolvency and
Bankruptcy Code
Pg 44
SKP Investment Chronicle 2015 | 4
Foreword
“We are happy to present to you Investment Chronicle 2015, the
first of an annual series that gives our readers a comprehensive
understanding of the Indian deal-making landscape, which comprises
of mergers and acquisitions, equity investments and exits. This report
analyses India’s Transactions Arena 2015.
Over the past decade, strategic and financial investments in India
have been growing consistently. With a CAGR of 9.6% in the past four
years deal markets have grown from USD 39 billion to USD 51 billion.
The increasing volume of billion-dollar deals in recent years has
shown the potential that markets can achieve.
To summarise, after a brief period of slowed activity, the surge in the
Indian deal-making scenario can be attributed to:
Better investor sentiments
An optimistic business scenario and the government’s intent to
build business environment
Increasing GDP prospects
Improvement in the pace of economic and sectoral reforms
The fact that the world’s second most populous country will soon
be outpacing other developed and developing countries
With a deal resurgence for transactions in 2014, the year 2015 headed
off to a slow start. The year 2015 has seen a steep increase in inbound
transactions on account of the depreciating rupee, costlier foreign
assets and stretched balance sheets. These setbacks however, could
not restrict domestic players from acquiring assets globally.
1
Highlights
Within outbound investments, the United States of America and the
United Kingdom top the charts with deals majorly in the healthcare
and information technology space. In the domestic deal scenario,
Maharashtra and Karnataka top the charts attracting investors across
sectors.
While M&A was not a dynamic activity, the interest from equity
investors rose to 1.6 times its value in the previous year and crossed
the USD 20 billion mark.
On the sectoral front, with changes in regulations and potential
growth factors, the Financial and IT & ITeS sectors earned more deals
this year.
We hope the insights shared in this paper will help you chart your own
strategy and understand the transaction environment.
Saloni Jhaveri Director
Business Advisory
SKP
Volume of deals
2678
Top PE exit
USD 385 million
Deal market valued
USD 51 billion
Top sector-wise FDI inflow
Services
Top Indian state by
investments
Maharashtra
Hot sector
Financials USD 11.3
billion
Top M&A deal valued
USD 1,260 million
Emerging segment
Healthcareequiptment and services
M&A CAGR (4 years)
3%
Top outbound partner by
investments
USA
Top PE valued
USD 1,158 million
Private equity CAGR (4 years)
25%
Source: SKP analysis
SKP Investment Chronicle 2015 | 6
Executive
Summary
2
SKP Investment Chronicle 2015 | 7
Exhibit 1: Deal Value Mix USD million
Particulars 2014 2015 Movement
Merger & Acquisitions 33,339 22,504 -32%
Equity Investments 14,616 23,228 59%
Private Equity Exits 5,003 5,512 10%
Total 52,958 51,244 -3%
Exhibit 2: Deal Volume Mix USD million
Particulars 2014 2015 Movement
Merger & Acquisitions 878 937 7%
Equity Investments 1029 1474 43%
Private Equity Exits 278 267 -4%
Total 2185 2678 23%
Exhibit 3: M&A Average Deal Size# USD million
37 44
111
45
113
96 59
115
90
141
53
97
2012 2013 2014 2015
Domestic
Inbound
Outbound
Executive Summary
Sectoral Focus
SKP Insights
Outlook
Foreword
Deal Landscape
Deal markets – A bird’s eye view
Transactions were valued at USD 51 billion with a minimal slump of 3% from the
previous year (as seen in Exhibit 1). However, the number of deals increased by
23% (as seen in Exhibit 2). The year 2015, witnessed the lowest number of billion
dollar deals in the last four years, with only three deals as compared to seven deals
in 2014. However, the 500-million-dollar segment remained robust with 18 deals
as compared to 21 deals in the previous year.
Equity investments valued at USD 23 billion, crossed the USD 20 billion mark for
the first time in the last decade in 2015. The deals surpassed 2007 levels, previously
the highest with USD 19 billion.
Mergers and acquisition activity saw a 32% drop in value. Interestingly however,
the deal volume has shown an uptrend. As witnessed in 2014, many deals that were
in the pipeline were revived because of optimistic investor sentiments. However,
2015 did not match the momentum of domestic deals in 2014, which was the
highest in the past decade.
Private equity exits have remained the same as the year 2014. Investors have
shown more interest in the exit modes, particularly, towards secondary sale and
open market sale, the latter being the most preferred exit mode of 2015.
The average deal size for cross-border transactions have nearly doubled this year
(as seen in Exhibit 3) with relaxed reforms and regulations being the major reasons
fueling the uptrend.
The interest of equity investors is on the rise, and is reflected in the upward trend
of the average deal size from 2012 (as seen in Exhibit 4).
Source: SKP analysis
SKP analysis
Source: SKP analysis
# Average Deal size is based on deals with disclosed values
Source: SKP analysis
SKP Investment Chronicle 2015 | 8
Exhibit 4: Equity Investment Average Deal Size# USD million
Exhibit 5: Sectoral panorama USD million
Sector M&A Equity Investments Private Equity Exits Total Weights Movement
in Value 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015
Consumer Discretionary 2,220 2,319 4,954 4,873 1,058 604 8,232 7,795 16% 15% -5%
Consumer Staples 1,530 583 284 394 165 332 1,979 1,310 4% 3% -34%
Energy 5,018 1,510 28 521 37 - 5,084 2,032 10% 4% -60%
Financials 4,399 3,792 3,427 5,806 1,177 1,718 9,003 11,317 17% 22% 26%
Health Care 5,351 3,970 1,360 1,322 344 555 7,054 5,847 13% 11% -17%
Industrials 2,429 1,319 1,041 3,533 822 631 4,292 5,483 8% 11% 28%
Information Technology 2,560 2,867 2,558 4,705 633 612 5,751 8,184 11% 16% 42%
Materials 2,253 2,729 294 279 261 494 2,808 3,501 5% 7% 25%
Telecommunication 2,373 3,092 70 4 430 451 2,873 3,547 5% 7% 23%
Utilities 5,207 323 600 1,790 75 114 5,881 2,227 11% 4% -62%
Total 33,339 22,504 14,616 23,228 5,003 5,512 52,958 51,244 100% 100%
29
38
54
81
8 9 10 15
25 22
33 38
2012 2013 2014 2015
PrivateEquity
Venturecapital
Real EstateInvestment
The average deal size for private equity investments has increased to USD 81
million from USD 54 million. Investments in real estate investments have increased
by 50% from USD 10 million in 2014 to USD 15 million in 2015.
The information technology, banking and financial services and healthcare sectors
drove the private equity investment activity in 2015. In the IT sector, growth was
backed by consolidation amongst e-commerce firms. Investments in the IT sector
multiplied two fold compared to 2014.
Investments in the regional banking sector that saw an uptrend in 2014 (ING Vysya,
Lakshmi Vilas, etc.) did not feature this year. The telecommunications sector
gained focus with four big size deals valued over USD 500 million including, Viom-
ATC valued at USD 1.2 billion. The life and health insurance sector was highly
active, with large players investing an average of USD 200 million through inbound
routes.
Source: SKP analysis
# Average Deal size is based on deals with disclosed values
Source: SKP analysis
Executive Summary
Sectoral Focus
SKP Insights
Outlook
Foreword
Deal Landscape
SKP Investment Chronicle 2015 | 9
Deal Landscape
1) Quarter-wise deal trends
2) Deal breakdowns
- For mergers and acquisitions
- For equity investments
- For private equity exits
3) Deal street: The Indian terrain
4) Cross-border transactions
3
SKP Investment Chronicle 2015 | 10
Quarter-wise deal trends
Exhibit 6 USD million
8,524 15,842 9,902 18,689 11,739 11,676 16,047 11,782
2014 2015
Exhibit 7: Sectoral Movements Decrease Increase USD million Sector Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 2014 2015 Variation
Consumer Discretionary 1,096 1,968 2,139 3,029 1,694 1,743 3,026 1,333 8,232 7,795 -5%
Consumer Staples 698 881 86 314 495 332 168 315 1,979 1,310 -34%
Energy 2,524 140 271 2,150 40 533 1,459 - 5,084 2,032 -60%
Financials 780 2,294 1,532 4,398 1,972 3,276 3,235 2,833 9,003 11,317 26%
Health Care 471 5,344 645 595 1,126 1,708 2,328 685 7,054 5,847 -17%
Industrials 686 1,898 980 728 2,278 726 797 1,683 4,292 5,483 28%
Information Technology 1,037 902 1,838 1,973 2,891 1,419 2,338 1,536 5,751 8,184 42%
Materials 330 363 966 1,149 489 1,057 1,834 121 2,808 3,501 25%
Telecommunication 157 1,140 262 1,314 262 720 205 2,360 2,873 3,547 23%
Utilities 745 912 1,184 3,040 493 161 657 917 5,881 2,227 -62%
Total 8,524 15,842 9,902 18,689 11,739 11,676 16,047 11,782 52,958 51,244
5,093
10,468
5,109
12,669
4,706 3,368
8,206 6,224
2,459
3,859
3,497
4,801
5,197 6,289
6,799
4,943 972
1,515
1,296
1,219
1,836 2,019
1,042
615
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
M&AEquity InvestmentsPE Exits
Started on a steady note, remains robust throughout
the year
The year 2015 has shown a consistent performance of deals throughout as
compared to 2014 which was volatile amongst quarters. Quarters 1 and 3 of
2015 showed an increase of 38% and 62% as compared to the respective
quarters of 2014, however there was a decline by 26% and 37% for quarter 2
and quarter 4 respectively.
The M&A segment which observed a slow momentum throughout the deal
activity of 2015 had peaked at USD 8.2 billion in quarter 3. However, it could
not surpass the 2014 quarter-wise average of USD 8.3 billion.
On the other hand, equity investments showed a positive behavior with its 2015
quarter-wise average of USD 5.8 billion above the 2014 highest quarter
performance level. Private equity exits remained robust throughout quarters
and touched the USD 2 billion mark in quarter2 of 2015. Overall, upturn trend
in the latter half of the year, is similar for this year with regards to the revival
of investor sentiments.
Source: SKP analysis
Deal
Landscape Sectoral Focus SKP Insights Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 11
Deal breakdown
Exhibit 7: Mergers and Acquisitions USD million
5,093 10,468 5,109 12,669 4,706 3,368 8,206 6,224
2014 2015
Top Mergers and Acquisitions 2015
ONGC Videsh Limited
American Tower Corporation
Lupin Limited
Birla Corporation Limited
Mylan Inc.
Outbound deal for Inbound deal for Outbound deal for Domestic deal for Inbound deal for
USD 1,260 million USD 1,174 million USD 880 million USD 766.4 million USD 750 million to acquire 15% stake in an energy, oil & gas company
to acquire 51% stake in a telecom company
to acquire 100% stake in a pharmaceutical company
to acquire 100% stake in a construction company
to acquire 100% stake in a pharmaceutical company
CSJC Vankorneft Viom Networks Ltd. Gavis Pharmaceuticals LLC Lafarge India Pvt. Ltd. Jai Pharma Ltd.
1,903
7,051
2,633
7,773
1,826 1,462 2,321 2,055
1,257
1,336
1,093
839
2,298
600
1,950 2,947 1,274
268
294
784
433
1,019
2,814 872 659
1,813
1,088
3,273
149
287
1,120
351
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Domestic
Inbound
Outbound
Others
Mergers and Acquisitions: Values dropped by 32% and
volumes increased by 7%
M&A was a passive game for players in 2015. The year witnessed a decline from
USD 33 billion to USD 22 billion, year-on-year. However, there has been a rise in
cross-border transactions from USD 7.1 billion to USD 12.9 billion.
A major highlight of the year was the rise in outbound deals by 96% which was
dominated by the healthcare pharmaceuticals industry which constitutes around
50% of the increased activity. Inbound deals have increased by 72% from USD 4.5
billion to USD 7.8 billion. Insurance, telecommunications and software services
accounted for nearly 50% of all inbound deals in 2015.
Activities on the domestic front dipped from USD 19.3 billion in 2014 to USD 7.6
billion in 2015 (60% decline), as 2014 was driven by a domestic market
consolidation and the interest of foreign players to increase their presence in
India. Some sectors such as energy, utilities and consumer staples failed to keep
up in the M&A deal space all through the year.
Source: SKP analysis
Deal
Landscape Sectoral Focus SKP Insights Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 12
Exhibit 8: Equity Investments USD million
2,459 3,859 3,497 4,801 5,197 6,289 6,799 4,943
2014 2015
Top Equity Investments 2015
Centerbridge Partners LP
Tiger Global LLC & Steadview Capitalfund Ltd
GE Energy Financial Services
Carlyle International Energy Partners LP
India Value Fund & TA Associates Ltd
PE investments for PE co-investments for PE co-investments for PE investments for PE co-investments for
USD 1,158 million USD 700 million USD 570 million USD 500 million USD 500 million
to acquire 100% stake in a
capital goods company to acquire 4.6% stake in an
e-commerce company to acquire UD* stake in an electric utilities company
to acquire UD* stake in a energy oil & gas company
to acquire UD* stake in a media broadcast company
Senvion SE Flipkart Pvt. Ltd. Welspun Renewables
Energy Pvt. Ltd. Magna Energy Ltd.
ACT Pvt. Ltd. ACT Broadband (ACT TV)
*UD-undisclosed
1,421 1,652 2,047 2,689 2,512
3,066 3,635
2,766 430
879 260
400 348
1,454 611
649
409
448 601
983 1,676
1,035 1,878
773
198
880 589
729 661
735
675
754
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Private Equity
Public Equity
Venture Capital
Others
Source: SKP analysis
Equity Investments: Changing tides for equity, the
private players spree continues, 59% rise in values
The year 2015 ended with the highest equity investments seen in the past decade,
valued at USD 23 billion, surpassed the previous high of 2007 which stood at USD
19 billion.
Private equity has seen a rise in investments from USD 7.8 billion to USD 11.9
billion. The increase in investor’s interest is mainly due to the financial services
sector, real estate development, and IT software and services.
Early seeders and ventures have doubled to USD 5.4 billion as against USD 2.5
billion in 2014 harnessing growth in internet retail, media broadcasting and
healthcare equipment as emerging segments.
Public equity has seen a rise in investments from USD 1.9 billion to USD 3.1 billion.
The Kuwait Investment Authority infused nearly USD 300 million in GMR Infra,
which brought signs of revival in PIPE (Private Investments in Public Entity)
amounting to USD 1 billion as opposed to USD 0.3 billion in 2014.
Deal
Landscape Sectoral Focus SKP Insights Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 13
Exhibit 9: Private Equity Exits USD million
972 1,515 1,296 1,219 1,836 2,019 1,042 615 2014 2015
Top Private Equity Exits 2015
TPG Capital Inc. KKR India Advisors Pvt. Ltd.
Chyrs Capital IV LLC
Temasek Holdings Advisors India Pvt. Ltd.
via secondary sale for via buyback for via open market for via secondary sale via open market for
USD 385 million USD 304 million USD 252 million USD 200 million USD 200 million
to sell 20% stake in a
finance company to sell 14% stake in a
construction company to sell 2.4% stake in a
telecom company to sell 11% stake in a
pharmaceutical company to sell 1.6% stake in a
telecom company
Shriram City Union Finance Ltd.
Lafarge India Pvt. Ltd. Bharti Infratel Ltd. Mankind Pharma Ltd. Bharti Infratel Ltd.
697
1,159 1,088 875
1,483
661 683
254
31
184
-
-
131
909
95
189
155
158
100
112
41 71
37
156
88
15
108
232
180 377
227
16
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Open market
Secondary Sale
M&A
Others
Private Equity Exits: Driven by open market; raised
divestor’s inclination for IPO modes
Activity showed a rise of approximately USD 5.5 billion in the value of exits as
compared to USD 5 billion in 2014, driven primarily by open market and
secondary sale, aggregating to 80% of the total exits.
Open market sale was the most preferred exit mode for the telecom, consumer
discretionary and the consumer staples sector investors. However, the
healthcare sector showed a rise in the IPO front with companies like Dr. Lal
Pathlabs, Narayana Hrudayalaya, Alkem Labs going public. Private equity
investors like Bain Capital, L Capital Asia, Sequoia, Tiger Global, etc. chose a
gradual path of divestments in their positions as indicated by their exits in Hero
Moto, Just Dial, PVR Cinemas, etc. in 2014 and 2015.
Exits will continue to remain an important focus area for PE investments made
in the past. Spending considerable time on their readiness and consistently
improving the performance agenda will be top priority for investors preparing
for exit in the near future.
Source: SKP analysis
Deal
Landscape Sectoral Focus SKP Insights Outlook Foreword Executive Summary
The Baring Asia Private Equity Fund V
SKP Investment Chronicle 2015 | 14
Deal street – The Indian terrain
Maharashtra
M&A 2015: 30% 2014: 15%
Key Deals
Jai Pharma – Mylan INC USD 750 million
Liberty Videocon – Liberty Mutual INC USD 374 million
EI 2015: 37% 2014: 28%
Key Deals
Intelnet Global – Blackstone Advisors USD 384 million
CG Electricals – Temasek Holdings USD 316 million
PE Exit 2015: 38% 2014: 35%
Key Deals
Larfarge India – Baring Asia PE Fund USD 304 million
M&M Finance – Cartica Capital USD 188 million
Karnataka
M&A 2015: 6% 2014: 19%
Key Deals
SmartPlay Tech – Aricent INC USD 180 million
Corporation Bank – GOI , LIC of India USD 141 million
EI 2015: 20% 2014: 16%
Key Deals
ANI Tech – Steadview, Softbank, DST, Tiger Global and others USD 500 million
Atria Convergence – India Valuefund & TA Associates USD 500 million
PE Exit 2015: 10% 2014: 6%
Key Deals
Britannia Industries – Arisaig Asia USD 153 million
ING Vysya Bank – ChrysCapital Investment USD 128 million
1
2
Deal models 2015 2014
Mergers and Acquisitions 15,437 24,003 Equity Investments (EI) 18,823 11,123 PE Exits 5,542 4,994
Source: SKP analysis
Summary of deals are based on the location of target companies
in India, comprising of domestic and inbound deals.
Deal
Landscape Sectoral Focus SKP Insights Outlook Foreword Executive Summary
USD million
SKP Investment Chronicle 2015 | 15
Haryana M&A 2015: 17% 2014: 20%
Key Deals
Viom Networks – American Tower Corporation USD 1,174 million
Sistema Teleservices – Reliance Communications USD 687 million
EI 2015: 10% 2014: 13%
Key Deals
Renew Power – Goldman Sachs, South Asian CE Fund, Abu Dhabi
Investment Council USD 265 million
Amplus Solar – ISQ Global USD 150 million
PE Exit 2015: 13% 2014: 10%
Key Deals
Bharti Infratel – KKR India USD 252 million
Bharti Infratel – Temasek Holdings USD 199 million
Delhi M&A 2015: 5% 2014: 9%
Key Deals
SembCorp Green – SembCorp Utilities PTE
USD 169 million
ABInbev India – Anheuser-Busch USD 100 million
EI 2015: 16% 2014: 14%
Key Deals
Welspun Renewables – GE Energy USD 570 million
Jasper Infotech – BlackRock INC, Temasek Holdings,
Softbank Corp and others USD 500 million
PE Exit 2015: 10% 2014: 18%
Key Deals
Mankind – ChyrsCapital LLC USD 200 million
Hero Motocorp – BainCapital USD 117 million
3
Tamil Nadu
M&A 2015: 7% 2014: 5% Key Deals
Polaris Consulting – Virtusa India USD 269 million GI Retail – WireCard AG USD 254 million
EI 2015: 6% 2014: 10% Key Deals
Shriram City Finance – Apax Partners LP USD 385million
Faery Estate – SPREP Pte USD 113 millionPE Exit 2015: 11% 2014: 8% Key Deals
Shriram City Finance – TPG Capital USD 385 million Agile Electric – Blackstone Advisors USD 106 million
5
Source: SKP analysis
Deal
Landscape Sectoral Focus SKP Insights Outlook Foreword Executive Summary
4
SKP Investment Chronicle 2015 | 16
Cross-border transactions
Outbound M&A Exhibit 10: Top 5 Targeted Countries (Ranks by deal values)
Rank Country
% of Deal Values % of investments in respective
sector 2015 2014
USD 5,140 million
USD 2,620 million
1
USA 30% 35% 62% 28%
Health Care Information Technology
2
Russia 25% - 100% Energy
3
UK 17% 1.2% 56% 22%
Telecommunications Information Technology
4
Switzerland 9% - 91%
9% Materials Metals & Mining Industrials
5
Australia 6% 0.5% 98%
2% Health Care Consumer staples
After a brief lull, acquisitions by
Indian companies in markets
overseas have touched USD 5.2
billion
Collectively, the cash-rich healthcare and IT
sectors contributed to nearly half of the
outbound deals, increasing outbound M&A to
USD 5.2 billion in 2015, compared to USD 2.54
billion a year ago.
The energy sector has also contributed with
ONGC acquiring 15% stake in the Vankorneft
oil project, a unit of Russia’s OAO Rosneft the
world’s largest publicly traded oil company.
*Healthcare – 31%
Energy – 25%
IT – 14% *(% of total outbound deal value)
“In the case of pharmaceutical companies,
acquisitions have been aimed at building
presence in key markets such as the US or
Europe, and also towards adding capabilities in
the therapeutic areas of interest”
- Raj Balakrishnan
Co-head of investment banking India
Bank of America Merrill Lynch. (cited from LiveMint 22 Jan 16)
Investors are questioning the rationality of acquisitions overseas when the synergy
is not apparent or immediate While deal activity is at its peak, the underlying drivers are significantly different from the deals which drove former
outbound deal activities, which was the need to secure natural resources. Such rationalities are absent from the mix this
time because of the financial situation of many companies.
Present deal rationales# Enhance/consolidate presence in international markets
Adding technological expertise to expand home/domestic operations
To improve flagging growth in pre-exiting markets
Acquire access to new products and licences to trade in regulated markets
Improve portfolios by adding high quality international assets
To secure raw materials at lower prices
(#as observed in major deals of ONGC-Vankorneft, Rajesh-Valcambi, Lupin-Gavis, Cipla-InvaGen, Infosys-Panaya, etc.)
Source: SKP analysis
Deal
Landscape
Sectoral Focus
SKP Insights
Outlook
Foreword
Executive Summary
SKP Investment Chronicle 2015 | 17
Foreign direct equity investments
Exhibit 11: By Country USD million
Ranks* Countries As on
Sep 2015 % of Total
Inflows Jan – Sep
2015 Jan – Sep
2014 Jan – Dec
2014
1
Mauritius 91,222 34% 6,805 5,373 7,073
2
Singapore 38,882 15% 9,124 5,194 7,092
3
UK 22,563 9% 770 908 1,096
4
Japan 19,167 7% 1,472 1,845 2,335
5
Netherlands 15,769 6% 1,954 2,646 3,254
Total FDI Equity Inflows from all countries 265,265 100% 26,517 22,091 28,785
*Ranks based on cumulative FDI as on Sep 2015 Source: Department of Industry Policy & Promotion Publications
Exhibit 12: By Sector USD million
Ranks* Sector As on
Sep 2015 % of Total
Inflows Jan – Sep
2015 Jan – Sep
2014 Jan – Dec
2014
1
Service Sector#1 45,367 17% 3,611 1,861 2,932
2
Construction#2 24,156 9% 143 880 1,019
3
Computer Software & Hardware
18,170 7% 4,381 1,008 1,558
4
Telecommunication 17,717 7% 885 3,690 3,894
5
Automobile Industry 14,002 5% 2,608 1,681 2,228
Total FDI Equity Inflows in all sector 265,265 100% 26,517 22,091 28,785
*Ranks based on cumulative FDI as on Sep 2015 Source: Department of Industry Policy & Promotion Publications
#1: Includes Financial, Banking, Insurance, Non-Financial / Business, Outsourcing, R&D, Courier, Tech. Testing and Analysis
#2: Includes development, townships, housing, built-up infrastructure
India among top 10 destinations for
FDI
Due to lacklustre of policy reforms, tax and political
uncertainties and issues of governance in the past few
years, 2015 has been a year for cross-border
investments due to the directive steps enforced by the
government.
Although, more than 50% of the inflows in India are
from Mauritius and Singapore, these are mainly on
account of the tax havens through which investments
are routed. While both these countries top the charts
they are clearly not the original source of investments.
The UK, Japan, Netherlands and USA are some of the
countries that top the charts as far as the original
source of investments are concerned.
A sectoral analysis of FDI suggests that the services
sector and the construction sector contribute to nearly
17% and 9% of FDI inflows for the period January-
September 2015, respectively.
The construction and service sectors will continue to
dominate the charts as foreign investments of
approximately USD 1 trillion are required by March
2017 to repair infrastructure such as ports, airports
and highways in order to boost growth.
Deal
Landscape
Sectoral Focus
SKP Insights
Outlook
Foreword
Executive Summary
SKP Investment Chronicle 2015 | 18
Sectoral
Focus 1) Hot sectors
2) Emerging segment
4
SKP Investment Chronicle 2015 | 19
I. Financials
Hot sectors
Exhibit 13: Snapshot
*Others 2% excluded in the inner doughnut
2012
9.6
289
2013
7.1
331
2014
9
345
2015
11.3
323
USD billion
>> Real Estate / Insurance / Diversified Financials / Banks Deals
Sectoral
Focus
Deal Landscape
SKP Insights
Outlook
Foreword
Executive Summary
Source: SKP analysis
PE Exits
Private Equity
Public Equity
Mergers and acquisitions
Real estate in private equity rising at
a CAGR of 18% (2011-15)
Top real estate PE deal GIC PTE – DLF
Home Developers was valued at USD
300 million
Private equity deals increased by 4.7
times since 2014
PE deals were dominated by
investments in life and health
insurance, specialised finance, asset
management and custody banks
Equity exits are declining at a CAGR of
17% (2011-15)
The preference for secondary sale
exit mode has increased amongst
divestors, rising to a CAGR of 99%
(2011-15)
Domestic deals were re-stabilised at
USD 1 billion after the high value ING
Vysya – Kotak Bank deal in 2014
which was valued at USD 2.4 billion
Multiline insurance and diversified
banks were amongst active segments
within the domestic M&A activity
Inbound deals touched the USD 2.6
billion mark, 27 and 7 times the 2013
and 2014 levels respectively
The Top inbound deal Liberty-
Videocon Insurance valued at USD
374 million, surpassed the
consolidated inbound deal values of
2014 (i.e. USD 363 million)
Public equity deals gradually gaining
momentum crossing USD 1 billion
level since 2012
However, we are yet to see high value
deals like those witnessed in 2012
SKP Investment Chronicle 2015 | 20
Exhibit 14: Sub-segment Activity
Grant of banking licence, relaxation of FDI norms in
insurance and real estate, sectors set for action in 2016
2015 was the year of financial sector reforms with heavy capital infusions due to
the relaxation of cap on FDI in insurance and issue of banking licenses to new
players. The latter half of 2015 witnessed India’s largest microfinance company
Bandhan Bank being set up, and a grant of 23 new licences being given to other
small finance and payment banks since 2014. India has also moved a step closer
to becoming a financial hub like Singapore or Dubai, with SEBI approving a
framework for international finance centres (IFCs) in Gujarat.
The capital starved insurance sector picked pace with heavy inbound investments
once the FDI limit was hiked from 26% to 49%. Foreign investors started investing
capital in their Indian holdings with an increased limit to invest in one of the world’s
largest insurance markets. International players such as the AXA Group, Bupa PLC,
Standard Life Plc and Sun Life Assurance aggregately grabbed deals amounting to
USD 1 billion.
Ambitious projects, increasing housing demand and
simplified FDI norms were lucrative factors attracting PE
investments
With the real estate industry facing a slowdown in the past few years, there was a
strong need for private equity participation. The government relaxed FDI norms in
the previous year to attract investments in this sector.
By the end of 2015, the government announced changes in the FDI regime and
equity investments amounted to USD 2.7 billion in real estate investments, with an
outlook for further inflows.
7%
38%
22%
33%
39%
26%
2%
34%
Banks
DiversifiedFinancials
Insurance
Real Estate
2014 2015
USD 9,003 million USD 11,317 million
Key changes in FDI norms to kick-start the real estate
sector to its speed
Removal of Floor Area Restriction condition (20000 sq. mtrs)
Removal of minimum capitalisation amount (USD 5 million)
Permission to exit and repatriate foreign investments subject to lock-in-
periods.
No government approvals for the transfer of stake from a non-resident to
another non-resident without repatriation.
Source: SKP analysis
Sectoral
Focus Deal Landscape SKP Insights Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 21
Exhibit 15: Top Deals USD million
Deal Target Buyer Deal Type Deal Value
% sought
Sub Sector Deal Rationale*
1 Shriram City Union Finance Ltd
Apax Partners LLP Public Equity 385 21% Consumer
Finance
Increase in portfolio of financial Service segment in India, prior investment being in Cholamandalam Investment and Finance Co.
2 Liberty Videocon General Insurance Co. Ltd
Liberty Mutual Group Inc.
Inbound M&A 374 31% Multi-Line Insurance
To increase its stake in Videocon GIC from 18% to 49%, funds to be used by Videocon for retirement of its debts.
3 Reliance Life Insurance Company Ltd.
Nippon Life Insurance Co.
Inbound M&A 342 23% Life & Health
Insurance To increase its stake from 26% to 49%, rationale to increase the range of services.
4 Sharekhan Ltd. BNP Paribas S.A. Inbound M&A 313 100% Diversified Financial services
To reinforce operations in India, further expand into brokerages as well as asset management through target company.
5 DLF Home Developers Ltd
GIC Pte. Ltd Real Estate Private
Equity 300 NA
Real Estate Development
To increase in portfolio of Indian real estate segment.
*Deal rationales: News, Articles and other public documents
Growth Drivers
Simplification of norms and extension of banking licenses
Government initiatives and continuous policy support
Interest subsidies for low-cost home buyers
Economic and demographic drivers
Technology innovation, the use of alternate channels for financial services
Source: SKP analysis
Sectoral
Focus Deal Landscape SKP Insights Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 22
Exhibit 16: Snapshot
wf
2012
4.4
440
2013
4.8
476
2014
5.8
586
2015
8.2
1015
II. Information Technology
*Others 2% excluded in the inner doughnut
Source: SKP analysis
USD billion
>>Hardware / semi-conductor equipment / software and services Deals
% share from private equity have
increased to 56% from 44% as
compared to 2014
Witnessed 5 deals valuing above USD
100 million as against single deal in
2014
Angle seed investments valued at
USD 181 million, with volumes
increased up to 450 deals as
compared to 210, 183, 156 deals in
2014, 2013 and 2012 respectively
45% of sector total deal volumes
were attributed to angel investments
Venture Capital has increased by 9
times (USD 2.8 billion) from 2014
(USD 1.4 billion)
Venture capital in internet software
and services segment have grown by
156% CAGR (2011-15)
The share of domestic deals in the
M&A pie remained robust on 37% as
compared to 35% in 2014
Within IT, application software (33%)
and communication equipment
(14%) constituted nearly half of the
domestic deal values
Inbound deals at USD 1.1 billion,
twice the 2014 (USD 540 million)
levels
Sub-segment internet software and
services contributed to 85% (USD 896
million) of inbound and 41% (USD
301 million) of outbound deals
Lowest number of public equity deals
in past 4 years with only 5 deals in
2015
Venture Capital
Private Equity
Public Equity
Mergers and Acquisitions
Sectoral
Focus Deal Landscape SKP Insights Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 23
0.00%
0.01%
96.24%
3.75%
0.00%
0.06%
94.80%
5.14%
Diversified Financials
Semiconductors &Equipment
Software & Services
Hardware & Equipment
2014 2015
Exhibit 17: Sub-segment Activity
Software sector improved with an increase in PE/VC
investments at USD 4.6 billion, sector up at USD 8.2
billion
India continues to consolidate its position among other developing countries in the
IT segment and is ready to become the world’s second-largest internet market after
China. With a new breed of tech-savvy consumers demanding personalised and
premium experiences, businesses have had to change their models and adopt
digital strategies to survive this cut-throat competition.
While in 2014, success was attributable to the emergence of the e-commerce and
e-tailing sector, 2015 saw active investment rallies in the IT software and services
within small and medium sized business segments. Besides developments in niche
segments around software-as-services and enterprise IT solutions, cloud
applications were also on the list of deal activity.
The growth of newer online business segments such as classifieds, real estate,
healthcare, and grocery, and service aggregators such as OLA cabs, Taxiforesure,
Quikrhomes, PayTm, Zomato may be infused with additional series of funds by
their investors. However, the investors of Justdial and MindTree considered it the
right time to exit through open market mode.
Indian policies fuelling a new breed of start-ups, have
caught the interest of overseas investors
To attract more foreign investment in the country, the union cabinet in the year
2015 passed a proposal allowing foreign entities to invest in Alternative Investment
Funds (AIFs). Entry with such funds will help decision makers invest more funds in
start-ups, early stage ventures and small and medium enterprises, which are
generally considered high risk investments.
USD 5,751 million USD 8,184 million
Activities of AIFs* USD million
Category Commitments
raised Funds raised
Investments made
Category I Infrastructure fund 1,058 303 208 Social Venture Fund 92 40 33 Venture capital fund 253 137 81 SME fund 24 19 3 Category III Total 1,427 499 325 Category III Total 2,263 1,209 1,052 Category III Total 541 449 354
Total 4,230 2,158 1,731 *figures as at the end of 30 September 2015 published by SEBI on 8 December 2015
Category I – These funds receive incentives from the government, SEBI or other
regulating agencies.
Category II – These funds can invest anywhere in any combination but are
prohibited from raising debt, except for meeting their day-to-day operational
requirements
Category III – These funds trade with a view to making short-term returns. It
includes hedge funds, among others.
Source: SKP analysis
Sectoral
Focus Deal Landscape SKP Insights Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 24
Exhibit 18: Top Deals USD million
# includes other investors also; only few have been mentioned here
*deal rationales: News, Articles and other public documents
Deal Target Buyer Deal Type Deal Value
% sought
Sub Sector Deal Rationale*
1 One 97 Communications Ltd.
Alibaba Group Holding Ltd., RNT Associates Pvt. Ltd., Ratan Naval Tata
Inbound M&A
710 41% Internet
Software & Services
Create presence in mobile payment services in Indian markets
2 ANI Technologies Pvt. Ltd.
Steadview Capital Master Fund Ltd., SoftBank Corp., Tiger Global and others#
Venture Capital
500 Not
available
Internet Software &
Services
Growing the existing position and share in market as well as fend off competition from close rivals.
3 ANI Technologies Pvt. Ltd.
DST Global, Steadview Capital Master Fund Ltd., GIC Pte. Ltd., RNT Associates Pvt. Ltd, and others#
Venture Capital
402 17% Internet
Software & Services
Growing the existing position and share in market as well as fend off competition from close rivals.
4 Intelenet Global Services Pvt. Ltd.
Blackstone Advisors India Pvt. Ltd. Private Equity
384 100%
Data processing & Outsourced
services
Consolidation of presence in India BPO business segments in India.
5 CMS Info Systems Pvt. Ltd.
The Baring Asia Private Equity Fund VI
Private Equity
300 100% IT consulting
& services Expanding the access to banking services in India.
Key performance indicators/key drivers
Increasing interest of investors in e-commerce and start-ups
Development of niche segments such as social, mobility, analytics and cloud
(SMAC)
Applying software as services (SAS) for improving efficiency and achieving
economies of scale for service companies
Cost competitiveness – unique selling proposition (USP) in global sourcing
market
Source: SKP analysis
Sectoral
Focus Deal Landscape SKP Insights Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 25
Exhibit 19: Snapshot
2012
3.7
278
2013
3.9
298
2014
4.3
284
2015
5.5
304
III. Industrials
*Other 2% excluded in the inner doughnut
Source: SKP analysis
USD billion
>> Capital goods / commercial and professional services / Deals Transportation / transportation infrastructure
Private equity
Venture capital
Public equity
Mergers and acquisitions
PE exits share through the open
market mode dropped from 68% to
48% as compared to 2014.
Venture capital investments are
growing at a CAGR of 64% (on four
year basis)
55% of the VC investments were
invested in the air freight logistics
sub-segment
PE investments have increased by 3.5
times (USD 2.6 billion) from 2014
(USD 758 million)
70% of the PE investments resulted
from deals in heavy electrical
equipment and construction
engineering sub-segments
The M&A deal value dipped below the
USD 1.3 billion mark, and was USD
2.5 billion both in 2014 and 2013
Only 2 deals above USD 100 million
as against 5, 7 and 6 deals in 2014,
2013 and 2012 respectively
Inbound deals amounted to USD 245
million, which was even less then the
value from a single deal of 2014 (USD
278 million)
Outbound deals have lowered to half
its value since 2014
Private investments in public entity
(PIPE) peaked to USD 358 million with
Kuwait Investment Authority
investing USD 300 million in GMR
infrastructure Ltd.
PE exits
Sectoral
Focus Deal Landscape SKP Insights Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 26
Exhibit 20: Sub-segment activity
66%
10%
20%
5%
59%
7%
10%
23%
Capital Goods
Commercial &Professional Services
Transportation
TransportationInfrastructure
2014 2015
Private equity drives 2015 with a billion dollar deal for
heavy electrical equipment company Senvion SE;
Construction and engineering segments were high on
fund raising
The industrials sector, which has been struggling for years due to the delayed
government's decision making on issues over land acquisition, environment, and
poor financial health of private sector players. Private players are however, are now
actively attracting acquisition and fund-raising deals. The sector is now ready for
more deals that will revive stranded projects and help the sector bounce back in
2016.
With the increase in government initiatives, significant
international investors in the infrastructure space will
drive the ancillary industries attached#1
The Government of India has allocated USD 7.5 billion to develop 100
smart cities across the country.
The government also plans to invest USD137 billion in its rail network over
the next five years.
The government has announced highway projects worth USD 93 billion,
which include government flagship National Highways Building Project
(NHDP) with a total investment of USD 45 billion over the next three years.
International Finance Corporation (IFC), part of the World Bank group,
plans to invest at least USD 700 million in the existing transport and
logistics infrastructure projects in India.
The government plans to launch the National Infrastructure Investment
Fund (NIFF) with an initial corpus of at least USD 6 billion.
In November 2015, within government infrastructure spending, the roads
segment led in terms of tenders issued (59% of the total tenders) and
contracts awarded, with an increasing shift to Engineering, Procurement
and Construction (EPC) type of contracts.
The Reserve Bank of India (RBI) has notified 100% foreign direct
investment (FDI) under automatic route in the construction development
sector. The new limit came into effect in December 2014.
In the Budget 2015-16, the capital outlays for roads, and railways have
been increased by USD 2.11 billion and USD 1.51 billion respectively.
#1 References: Media Reports, Indian Construction Equipment Industry Vision 2020 Report,
Department of Industrial Policy and Promotion (DIPP)
USD 4,292 million USD 5,483 million
Source: SKP analysis
Sectoral
Focus Deal Landscape SKP Insights Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 27
Exhibit 21: Top Deals USD million
Deal Target Buyer Deal Type Deal Value
% sought
Sub Sector Deal Rationale*
1 Senvion SE Centerbridge Partners LP Private Equity
1,158 100% Capital goods
Electrical Equipments
Entry to increased product portfolio in renewable energy, Funds to be utilised to expand & expertise in existing market
2 QuEST Global Services Pte. Ltd.
Bain Capital LLC, GIC Pte. Ltd. Private Equity
325 Not
available
Capital Goods Construction &
Engineering
Expanding sector portfolio by acquiring the target.
3 GMR Infrastructure Ltd.
Kuwait Investment Authority Public
Equity PIPE 300 18%
Capital Goods Construction &
Engineering
To improve financial health of the target, Funds to be used to repay outstanding obligations of the target.
4
Pipavav Defence and Offshore Engineering Co. Ltd.
Reliance Defence Systems Pvt. Ltd. Domestic
M&A 280 37%
Transportation – Marine
Expanding into new segments, to gain synergies from changing domestic governmental initiatives in defence space
5 Transtar International Freight
TVS Asianics Supply Chain Solutions Pte. Ltd.
M&A 200 Not
available
Transportation - Air Freight &
Logistics
To enhance the presence in international markets, via its subsidiary in Singapore.
*deal rationales: News, Articles and other public documents
Key performance indicators/key drivers
Funds allocated for smart-cities, roads and railway network to drive
infrastructure projects.
Logistics are driven by the company’s need to optimise the supply chain
reducing gaps between demand and supply.
Rapid industrial growth with government incentives such as Investment
Allowance @ 15% for companies investing in plant and machinery.
Overseas investments in the construction development sector on allowance
of FDI.
Cost competitiveness as a unique selling proposition (USP) in the global
sourcing market
Source: SKP analysis
Sectoral
Focus Deal Landscape SKP Insights Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 28
Emerging segment
Healthcare equipment and services
994
545 250
929
884
829
655
539
5 164
- -
274
600
40 183
2012 2013 2014 2015
M&A Private Equity
Public Equity PE exits
410 168
81 108
1,371 1,963
757 1,377
375 6 132 166
2012 2013 2014 2015
HC Equipment & SuppliesHC Providers & ServicesHC Technology
Exhibit 22: Trends
Sectoral
Focus Deal Landscape SKP Insights Outlook Foreword Executive Summary
Healthcare providers and services segment progresses for consolidation after witnessing high equity investments
in the past few years
Socio-economic factors such as an increase in healthcare spending, potential for
insurance coverage, increase in doctor's density, rise in the number of diseases,
expanding middle class and the un-served population are some of the driving
factors that has led to the increasing demand for quality healthcare facilities and
services. However, India’s healthcare infrastructure has not been able to tap and
match the pace of increasing demand.
Factors that has pushed healthcare facility and service providers to expand:
Large spread in supply and demand for healthcare facilities and services
Rising capital demand owing to high operational cost
High need for technological advancements
Recently, the Indian government is taking steps to strengthen the regulatory and
policy framework, infrastructure, R&D and skill development. These steps will create
new opportunities for both domestic and overseas players and will attract
companies with a strong product pipeline, wide hospital reach, and quality
infrastructure who will have an edge over others and will be in a better position to
capitalise on their intrinsic value proposition.
Source: SKP analysis
SKP Investment Chronicle 2015 | 29
27 20 24 21
71
92
81 78
8 14 19 17
2012 2013 2014 2015
HC Equipment & SuppliesHC Providers & ServicesHC Technology
22 10
8 8
29 30 14
28
62
1 9
14
2012 2013 2014 2015
HC Equipment & SuppliesHC Providers & ServicesHC Technology
In the near future, the sector will be buoyed by a strong and robust regulatory
framework. Currently largely underdeveloped, the regulatory framework will only
act as a catalyst for growth once the proposed laws and policy changes are
implemented. India’s government has given due attention to the sector by making
it one of its priorities and by allowing 100% FDI in the sector.
While the sector is currently import-dependent with limited or no access to new
technology, the government’s improved focus and favourable policy, domestic
players are beginning to fiercely compete with MNCs in various product categories.
Many MNCs have started manufacturing in India and more are expected while the
government continues to assist the sector in a holistic manner. With all of the
upcoming market, regulatory, policy and technological developments, the industry
is attractive to investments across segments.
Recent changes in the foreign exchange regulations with respect to the medical
device sector has allowed 100% FDI in both greenfield and brownfield projects.
This is a great opportunity for foreign players to enter the highly attractive Indian
market.
USA, Europe and Japan are the key source countries for FDI in medical devices.
The equipment and instruments, consumables and implants segments have
attracted the most FDI.
The sector, with its tremendous growth potential, has attracted significant private
equity capital in the last five years.
Companies such as Trivitron, Sutures India and Perfint Healthcare have received
several rounds of investments from investors, reflecting continued faith in the
sector.
In the coming years, financial investors may explore exit options, opening up
significant growth opportunities for strategic partnerships.
The healthcare equipment and supplies segment is certain to witness impressive growth, as access to healthcare
facilities in the country is presently limited
Sectoral
Focus Deal Landscape SKP Insights Outlook Foreword Executive Summary
Exhibit 23: Trends
Source: SKP analysis
SKP Investment Chronicle 2015 | 30
SKP Insights 5
A winning
strategy for paced
growth
- Case study: Lupin
Limited
Financial
re-engineering of
stressed assets
- SDR Scheme
- Insolvency and
Bankruptcy Code
The start of the
start-ups era
- Evaluation and
prospects
SKP Knowledge Room Helping you evolve, chart your own strategy and be cognizant of the transaction space surrounding you
‘’Acquisitive strategy is an integral part to overall growth strategy’’ This insight highlights how acquisitive companies through their disciplinary approach integrate
both organic and inorganic growth to not only fortify their competitive position in the current
Indian markets but also to grow swiftly
‘’Lenders apprehending stressed assets, although their foray and
competency to revive is a question of concern’’ This insight highlights how financial reengineering will result into restructuring, foreseeing opportunities
for investments in distressed assets
‘’Relaxed regulations and monetary incentives to nurture Start-ups
and attract Venture capitalists’’ This insight highlights how venture capitalists should commercially evaluate and value start-ups
SKP Investment Chronicle 2015 | 32
SKP
Insights Deal Landscape Sectoral Focus Outlook Foreword Executive Summary
A company’s thrust to grow faster and to create an impact on shareholder’s value
has made inorganic growth a core strategy to its overall growth.
This is evident from rising deal volumes from small ticket to big ticket transactions
which are key to growth and global competitiveness. Although, various research
indicates that the inorganic method is less effective to create shareholder’s value in
long term. It is evident from the past that companies using a disciplinary approach
and are acquisitive, grow faster than those who make few or no acquisitions.
Dissecting a deal in isolation may not make sense sometime in shorter term but
analysing individual companies categorised by their degree of acquisition activities
over long term may help understand the disciplinary approach and examine long
term performance. We have observed that the acquisitive strategies for most
companies are primarily driven by their intent to create a product pipeline, enter
new markets, access distribution channels and customers, achieve technological
advancement and develop manufacturing expertise.
Exhibit 24: Top Acquisitive Start-ups USD million
Sr No
Trade Name
Company Deal
Volume Deal
Value
1 Jasper Infotech Pvt. Ltd. 7 400
2 ANI Technologies Pvt. Ltd. 3 200
3 Zomato Media Pvt. Ltd. 3 55
4 Practo Technologies Pvt. Ltd. 4 12
5 Locon Solutions Pvt. Ltd. 5 5
The companies mentioned in Exhibit 24, are successful serial acquirers. They undertake
many acquisitions, spending over 5% of their entity value per year, on an average. Such
companies grow as much as three times faster than their rivals, and deliver attractive
shareholder returns which are nearly double the returns of their peers over a sustained 15-
year period.
Companies like Sun Pharma, Piramal, Lupin, Mylan, Wipro, Mahindra Group and Future
Group were the most acquisitive companies in last five years. Even start-ups adopted
inorganic growth as their core strategy in 2015, with increased deal volumes core to the
growth of these acquisitive start-ups. Start-ups like Snapdeal, Ola, Housing.com and Flipkart
were aggressive in their acquisitions.
Exhibit 25: Top Acquisitive Businesses USD million
Sr No Company Deal
Volume Deal
Value
1 Sun Pharmaceutical Industries Ltd
10 4,284
2 Piramal Enterprises Ltd 15 1,262
3 Lupin Ltd 7 880
4 Cipla Ltd 6 576
5 Wipro Ltd 9 559
6 Strides Shasun Ltd 7 558
7 Tech Mahindra Ltd 7 380
8 Bharti Airtel Ltd 11 186
9 Jindal Steel and Power Ltd 10 177
10 Future Consumer Enterprises Ltd
10 73
Mergers and acquisitions:
A winning strategy for paced growth SKP #1
Insights
Source: SKP analysis Source: SKP analysis
SKP Investment Chronicle 2015 | 33
Acquisitions are made because companies believe that it is a more effective means of meeting a strategic need of increasing
shareholder value and achieving growth. While any of the above attributes will enhance value, capturing proprietary technology or
products will have a significant competitive advantage in gaining market leadership and can dramatically enhance the value of a
company.
Company’s Strategies for Growth
For understanding the acquisitive company’s strategy we have
evaluated Lupin Limited to understand their perspective on inorganic
growth and how they align their strategies with the company’s vision.
Whether to grow organically or inorganically depends on the company’s
positioning and the value/synergy it will create at the group level.
Choosing a strategy is not about making unwarranted acquisitions for
speedy growth or continuing with the organic growth, but about
assessing the entire investment portfolio to create an impact on the
enterprise’s performance.
SKP
Insights Deal Landscape Sectoral Focus Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 34
Strategic
Bets
Growth/Expanding Effeiciencis
Enhance/Compliments Investments
Strategic Priorities
Specialities Newer Markets Niche Therapies Complex Generics
Gavis Pharmaceuticals LLC Multicare Pharma INC
Laboratory Grin Biocom JSC
Medquimica SA Nanomi B.V.
Temmler GMBH Aspen Goanna Oscient Antara Collegium INC
Exhibit 26: Assessing Lupin’s Acquisitions against Common Framework
High
Impact on
Enterprise
Performance
Game
Changers
Platform
Enablers
Value
Addition
Low Source: SKP analysis
Merger and acquisitions strategy
Expand in complex generics: The complex generic drug segment is about to grow by
double as compared to commoditised generics, with healthy margins of over 30-40%
of the sales. This will not only boost growth but will also help improve profitability.
Also, complex generics are differentiated products and hence their competitive
intensity is relatively low, with four to seven sellers per product. Lupin sees potential
in this segment, and has reinvested their cash flow and increased R&D expenses to
develop complex products.
Enter into new markets: The company is looking at both, developed and emerging
markets which are growing rapidly. Markets such as USA, Latin American, Brazil,
Russia, Philippines and South Africa are key to their strategy, as they have an annual
growth rate of 15-20% in the branded medicine segment.
Focus on niche therapies: The company will strengthen its business through
acquisitions in niche segments such as injectables, cardiovascular, dermatology,
women’s healthcare respiratory and paediatrics across markets
Lupin Ltd.
Between FY 2008 and FY 2015, Lupin ltd. made 14 acquisitions, of which seven were
carried out in the last two years, three in FY 2014, four in FY 2015. The largest
acquisition was of US-based Gavis that was acquired for USD 880 million. Revenues,
which were to the tune of USD 500 million in FY 2007, increased to USD 2000 million
in FY 2014-15.
Lupin, India’s third largest pharma company by sales, made its first international
acquisition in Japan in 2007 by acquiring a company called Kyowa. It was the first
time that the company made its intention to grow inorganically overseas evident.
Since then, it has made a few more acquisitions. It showed increased activity in
buying foreign assets around two years ago.
The main focus of its acquisition was on the US generics market (USD 35 billion),
where it derives nearly half of its revenue, and on niche segments like
cardiovascular, injectables, dermatology and oral contraception.
SKP
Insights Deal Landscape Sectoral Focus Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 35
Value Creation
Optimise Core
Management Expertise
Distribution Channel
Research and Development
Inorganic Growth
Differentiated Products & Newer Markets
Expansion in USA, Japan and Europe
Complex generics with speciality products
Limited Competition
Cardiovascular, Injectables, Dermatology, Respiratory,
Controlled Substances etc (Niche Therapies)
Vision*
“Leading generics player with a
larger specialty business, aims to
achieve USD 5 billion by FY2018”
- Vinita Gupta (CEO LUPIN)
*Commented at the global healthcare
conference in San Francisco
2008 2012 2015 Road Ahead
Timeline
4. Leverage onCapabilities Built 3. Strategic Bets
(Market Entry)
2. DifferentiatedProducts
(Complex Generics)
1. Optimise
CoreStrategic
Priorities
Exhibit 27: Assessing Lupin’s Timeline
Lupin has strategised priorities for improving organisational performance. They have integrated both organic and inorganic growth to allow
a continuous alignment of business strategies to the changing environment. The long term growth plan implemented by the company in
the last five to six years aimed at optimising core capabilities, building assets by acquiring differentiated products and entering global
markets. The manner in which a company leverages on the capabilities developed, will be a decisive factor in determining the growth rate
in future.
SKP
Insights Deal Landscape Sectoral Focus Outlook Foreword Executive Summary
Source: SKP analysis
SKP Investment Chronicle 2015 | 36
1) Nanomi (Netherlands)
Acquired in February 2014
Deal Rationale
Expand its business in patented products
Enter the technology-intensive injectables
space and the niche area of complex generics
Target’s Vital Stats
Nanomi's expertise in nano and micro particles
will help it explore new disease portfolios in the
injectable space
2) Laboratories Grin (Mexico)
Acquired in March 2014
Deal Rationale
Enter into the high-growth Mexican and
larger Latin American drug market
Target’s Vital Stats
Laboratorios Grin has 275 employees,
including a 130-member sales force
Mexico is one of the fastest growing
pharmaceutical markets in the world valued
at over USD 13.5 billion and growing at 9-
10% annually. The Mexican ophthalmic
market is currently valued at USD 275
million.
4) ZAO Biocom (Russia)
Acquired in July 2015
Deal Rationale
Entered the Russian market and expanded
neighbouring markets
Target’s Vital Stats
Revenues of USD 16.3 million in 2014, 118
employees
Russian market is estimated at USD 13.8 billion
and expected to be one of the top eight
pharmaceutical markets in the world.
Generic drug maker, with a focus on
cardiovascular diseases, the central nervous
system and antimicrobials
Lupin’s recent transactions
3) Medquimica Industria
Farmaceutica (Brazil)
Acquired in May 2014
Deal Rationale
Lupin’s entry in Latin America
Target’s Vital Stats
Revenues of USD 31 million in 2013 and 550
employees
Branded, generic and over the counter drugs
Sixth largest market, valued at USD 30 billion
which is growing at a CAGR of 17%
Fastest growing company in Brazil. It has a trusted
brand and a distribution channel
5) Temmler Pharma (Germany)
Acquired in July 2015
Deal Rationale
Added 13 speciality products including therapies
like central nervous system (CNS), dementia, etc.
to their portfolio
Target’s Vital Stats
Strong strategic fit with the Hormosan business
group and enhances the CNS speciality portfolio
in Germany
6) Gavis (New Jersey)
Acquired in July 2015
Deal Rationale
Strengthen its foothold in the US market
Newly bolstered product pipeline to expand its
complex generics offerings in the high-margin,
niche, limited competition segments such as
dermatology and controlled substances
Target’s Vital Stats
Sales for 2014 were worth USD 96million and the
EBITDA margin is at 36%
Company’s revenue is projected to grow threefold
by 2018
With GAVIS, Lupin has 164 ANDA filings
With Gavis, Lupin has now become the fifth-largest
company in filings with the US FDA
SKP
Insights Deal Landscape Sectoral Focus Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 37
Akin to companies that adopt acquisitive strategy for strategic growth, there are equity investors who adopt a focused approach in financial investments. Listed below are a
few active investors analysed based on the deal type, sectors and sub-segment focus.
Exhibit 28: Active Private Equity Firms#1
Volumes 19
Private equity 6
Venture capital 1
Public equity 7
PE exits 5
Sub-segment Focus
Application Software - Manthan Systems , MakeSense
Consumer Electronics – Crompton Greaves Electricals
Consumer Finance – Mahindra Finance
Diversified Banks – InnoVen Capital India
Health Care Facilities – Medanta , HCG
Industrial Conglomerates – Mahindra Group
Telecommunication Services – Bharti Infratel
Internet Retail – SnapDeal.com
Internet Software & Services – Bill Desk, Zomato, JustDial
Life & Health Insurance – ICICI Prudential Life Insurance
Personal Products – GCPL
Pharmaceuticals – Sun Pharma, Glenmark Pharma
Real Estate Development – Oberoi reality
Volumes 12
Private equity 6
Venture capital 2
Public equity 1
PE exits 3
Sub-segment Focus
Construction & Engineering – Quest Global
Electric Utilities – Greenko Mauritius
Internet Software & Services – Sulekha, Olacabs
Investment Banking & Brokerage – Edelweiss Financial
Personal Products – Marico
Real Estate Development – Prestige, DLFHome, JainHousing
Specialized Finance – Bandhan Financial Services
Sector-Volume % Sector-Volume %
Source: SKP analysis
#1 Data illustrated are abridged for representative purposes
SKP
Insights Deal Landscape Sectoral Focus Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 38
Exhibit 29: Active Venture Capital Firms#1
Volumes 73
Venture Capital 54
Private Equity 5
Angel seed 2
PE Exits 12
Sub-segments Focus
Internet & Catalog Retail – Grofers, Craftsvilla, OYO Rooms,
Urbanladder, Healthkartplus, PepperTrap.
Internet Software & Services – BankBazar, Theporter, Citrus Payments,
Vipul goodservice, Helpchat, Shutti,
WizRocket, QuoponWallet, Newshunt.
PE Exits –Eclerx, Justdial, FreeCharge
Pharmaceuticals – Celon Laboratories Ltd, Innovcare
Lifesciences, La Renon Healthcare.
Consumer Service – Byju Classes, OneAssist Solutions
Restaurants & Leisure – Faaso's Food Services
Financial Services – ISFC, DHFL (PE Exit)
Health Care – Practo, MedGenome Labs
Household Durables – Homelane
Beverages – PaperBoat
Air Freight & Logistics – Roadrunnr (Carthero Technologies)
Chemicals – PI Industries (PE Exit)
Volumes 51
Venture Capital 37
Angel Seed 9
PE Exits 5
Sub-segments Focus
Internet Software & Services – Ola cabs, BlaackBuck, Cohesity, Opino,
UrbanClap, Mubble, MoneyView,
Konotor (PE Exit)
Internet Catalog & Retail – Capricoast, Zanzaar, Zopnow,
Teabox, collectabillia, Babyoye (PE Exit)
Education Services – ANSR, Vedantu
Health Care Services – Portea
Hotels & Resorts – Fabhotels
Insurance Brokers – Coverfox Insurance
Consumer Services – MindTickle
Transportation – Qikpod (LeapMile Logistics)
Durables & Apparels – Bluestone Jewellery and Lifestyle
Sector-Volume % Sector-Volume %
Source: SKP analysis
#1 Data illustrated are abridged for representative purposes
* Consumer Discretionary
SKP
Insights Deal Landscape Sectoral Focus Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 39
Financial re-engineering of stressed
assets: Impacting deals
At the end of March 2015:
Non-performing assets (NPAs) of banks 4.40% of Loans Disbursed
Stressed-assets ratio (SAR) 10.60% (USD 103 billion)
Anticipated SAR March 2016 12.00% (ICRA Estimates)
Stakeholders should attempt to revive the business in which they hold stakes.
According to the World Bank Report, in India it takes 4.7 years, on an average, for
a creditor to recover from a bankrupt company even a quarter (25%) of their dues.
However, in the United States, these cases are resolved within 1.5 years, on an
average, and creditors recover as much as 80% of their money.
These are definitely worrying signs. However, a series of measures have been taken
by regulators and policy makers which may improve the figures in the coming
years.
Regulators and policymakers want to ensure that the emphasis is on universally
accepted basic banking norms i.e. "shareholders will bear the first losses and not the
debt holders". This could also be considered as the RBI’s efforts to re-engineer the
assets held by the lenders and speed-up the decision making involved in the process
of stressed assets.
2015 witnessed two landmark decisions by policymakers that would direct the road
ahead:
The RBI notification introduced the movement of control from shareholders
to lenders through the Strategic Debt Restructuring (SDR) Scheme, in cases
where the borrower defaults, and the SDR triggers)
The announcement by the finance minister on the proposed Insolvency and
Bankruptcy code 2015.
Regulators and policymakers now have a clear intention to restructure/reengineer
the standard assets before deterioration of quality or prior to sufferings faced by
shareholders and lenders. The move will also ensure that failed businesses are eased
out in an orderly manner so that stakeholders and creditors are protected from
undue losses. These interventions have come at a crucial time with an urgency to
resolve the delays/inadequacies of the earlier policies that were on account of the
involvement of many authorities.
2001
23 August, detailed guidelines were issued by RBI for
Corporate Debt Restructuring (CDR)
5 February, RBI revised guidelines on Corporate Debt
Restructuring (CDR)
2003
2014
RBI issues notification “Flexible Structuring of Long Term Project loans to Infrastructure and Core Industries” a.k.a “5:25” scheme
Framework for Revitalising Distressed Assets in the economy – Guidelines on Joint Lender’s Forum (JLF) and Corrective Action Plan (CAP)
RBI issues notification “Strategic Debt Restructuring (SDR) Scheme”
Bill-Insolvency and Bankruptcy Code 2015 – was introduced in the lower house
2015
SKP #2
Insights
Timeline
SKP
Insights Deal Landscape Sectoral Focus Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 40
Case Studies
GAMMON INDIA
Debt position Stressed with rising costs and mounting debt liabilities
Approached CDR Infrastructure company approached the CDR Cell in
March 2013
CDR Restructuring Debt restructuring package was approved with a 10-year
repayment plan and a reduction in interest rate by 1% for
15 months in June 2013
Evoked SDR Unable to revive the company via a CDR package, the
lenders’ consortium evoked SDR in November 2015
IVRCL
Debt position Losses from debt-funded expansion projects
Approached CDR The infrastructure company approached the CDR Cell in
January 2014
CDR Restructuring The debt restructuring package was approved with the
restructuring of term loans, working capital loans and new
tranche of financial assistance by banks
in June 2014
Evoked SDR Unable to revive the company via a CDR package, the
banks invoked SDR in November 2015
ELECTROSTEEL STEELS
Debt position High debts for incomplete greenfield projects
Approached CDR Financial difficulties to complete incomplete
projects approached the CDR Cell in May 2013
CDR Restructuring Debt restructuring was approved in September 2013
Evoked SDR Unable to revive the company via a CDR package, the
lenders invoked SDR in June 2015
Decoding steps taken in 2015
Notification on Strategic Debt Restructuring (SDR)
Scheme
The SDR scheme, introduced by the Reserve Bank of India (RBI) in June 2015, allows
banks to convert part of their debt to majority equity in a defaulting firm, thus,
allowing them to take operational control. The equity can be held by the bank for
a period of 18 months, without attracting an adverse asset classification on the loan
account. Banks can take control over management and find a buyer for the asset
within these 18 months. The RBI has come up with a plan that strategically helps
the banks to recover their loans from defaulting companies while reducing stressed
assets.
The provisions detailed require the borrowing company to approve and authorise
the conversion option as required by the Companies Act or any other applicable
law. This maintains the transparency of the procedures and the collective action
plan of the stakeholders (both equity and debt) to implement and recover the debt.
It is very critical to create information utilities supporting lenders from time to time
in assessing and evaluating the borrower’s performance. However, banks will be
urged to offload such equity stakes to new promoters quickly, on account of the
lack of expertise to manage the companies that they take over. Further, it would be
difficult for lenders to closely monitor companies under the SDR scheme,
especially, when it is outside their core competency.
The industry has seen a notable change after the implementation of SDR. For
example, the Lanco case can be cited to use the SDR rules effectively. They have
been able to clear balance sheets and bring about clarity in records for its three
lending banks – SBI, ICICI bank and Axis bank. Other instances where the SDR
scheme is followed are Electrosteel Steels Ltd., Visa Steel Ltd., Jyoti Structures Ltd.,
Alok Industries, Monnet Ispat and Power Ltd. However, it is worth mentioning that
these companies are still in their lock in period and yet to see the final outcome.
Source: News Article from The Indian express, SKP analysis
SKP
Insights Deal Landscape Sectoral Focus Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 41
Exhibit 30: Key Highlights of the Strategic Debt Restructuring (SDR) Scheme
When is SDR triggered? When the bank observes the deteriorating performance of a company even after certain steps to regain balance are taken, such as restricting of accounts
or substantial sacrifices and after allowing extensions.
When the defaulting company/borrower is unable to generate the revenue and pay back the loan due to operational and/or managerial issues, the lending
bank will have the power to recover their debt by converting the loan dues to equity shares.
Steps/process in initiating SDR
The Joint Lender Forum has to include the option of conversion of loans
into equity shares at the time of restructuring by the corporate debt
restructuring team
In the restructuring process, the forum along with the defaulter and the
lending bank will arrive at a viable plan, which will include a change in
ownership or management that is mutually agreed upon for revival and
regeneration of revenues in order that the debt is repaid
Failure to meet the milestone of the plan will result in the lending bank
eventually converting the dues into equity. Thus, the borrowing company
has ample opportunities to turn an NPA into a performing asset
Features/conditions under SDR
If the company fails to achieve the milestones stipulated in the
restructuring package, the decision of invoking the SDR must be taken by
the JLF within 30 days of the review of the account during restructuring.
The JLF must approve the debt to equity conversion under the Scheme
within 90 days of deciding to invoke the SDR.
All the members of the JLF must collectively hold a minimum of 51% of
the equity share from the borrowing company after the conversion comes
into effect.
SDR documentation is mandatory and must be approved by a minimum
of 75% of creditors by value and 60% of the creditors by number of the
members of the JLF Forum.
Pricing
The outstanding principal and interest amount will be converted into equity equivalent at Fair value. Fair value should not exceed the lowest of: market value, average
closing prices of equity during 10 days for a recognised stock prior to the reference date and the book value of the company on the latest adjusted audit balance sheet
without considering revaluation resources.
SKP
Insights Deal Landscape Sectoral Focus Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 42
Proposed Insolvency and Bankruptcy Code 2015
Considering the need and changing economic conditions the Insolvency and
Bankruptcy Code 2015 was one of the key emphasis in Budget 2015-16, proposed
by the Finance minister of India, Mr. Arun Jaitely to address the law that governed
the closure for bankruptcy proceedings in India.
The Insolvency and Bankruptcy Bill, 2015, managed to gain substantial response
from the public and induced hopes of reviving the laws pertaining to insolvency
and bankruptcy.
Since all the existing laws for bankruptcy in India are interwoven or are a part of
other laws and Act(s), there was a need for a single law to address bankruptcy
directly in the Indian laws. The Insolvency and Bankruptcy Bill, 2015 is a move
towards solving the problems of creditors before a company loses value and to
prepare for their their grievances.
The new code streamlines and consolidates all these laws to make the process
simpler and provide an easy exit option for insolvent and sick firms. The passage
of this Bill will enable quick and prompt action to be taken in the early stages of
debt default by a firm, thus maximising the recovery amount.
Recently on 18 January 2016 RBI reviewed the working of the Joint Lenders' Forum
(JLF) Mechanism, Flexible Restructuring of Long Term Project Loans, Strategic Debt
Restructuring Scheme and regulations on the sale of assets by banks to monitor
the tools used and the improvements needed to sharpen their efficacy and ease of
use.
In a nutshell
As the SDR scheme is set into motion, business experts have expressed mixed
reviews. Considering the paradigm shift to new hands, the lender will have to be
careful as the company’s management will not be convinced of giving up their
power for an 18-month period. This may pose further legal challenges if the
borrower shows reluctance in co-operation with JLF.
A critical task would be to find a promoter for a struggling company with an
ambiguous future. Further, there may be a rise in deal activity on account of
lenders who are willing to exit after 18 months.
Stakeholders may question whether India has an ecosystem for such regulations.
Are there enough insolvency professionals with relevant experience to handle such
insolvency projects? Whether the shift of control from the equity holder to the
stakeholder would work? What would the role of information utilities (e.g.
insolvency professionals and agencies) in the process?
Although most of the questions will be answered in time, currently the system
stands to be a progressive mechanism that requires the co-operation from both
sides. Only efficient management, monitoring and timely actions can ensure the
full implementation of the scheme which will in turn bring a positive outcome.
SKP
Insights Deal Landscape Sectoral Focus Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 43
Exhibit 31: Key Highlights of Proposed Bankruptcy Code
Triggers when Any financial default can trigger an insolvency resolution process. The applicant could be a financial creditor, an operational creditor or the company itself.
Financial Creditor i.e. Banks
Operational Creditor i.e. Employees
Corporate debtor i.e. Supplier Dues
Steps/process
If the application is accepted by the NCLT, a resolution professional will be appointed to oversee the resolution process, which must be completed within 180
days, extendable by a maximum 90 days – or else the company goes into liquidation.
Revival Plan: 180 DAYS + 90 DAYS = MAXIMUM 270 DAYS
In the interim - a calm period or moratorium will stay all creditors’ claims, the powers of the board of directors will be suspended and the company
management will report to the resolution professional.
A committee of creditors, comprising all financial creditors will decide on the revival plan or on liquidation and NCLT has the final say
Features/Condition under liquidations Setting up of an ‘Insolvency and Bankruptcy Board of India’ to regulate professionals, agencies and information utilities engaged in resolution of insolvencies of
companies, partnership firms and individuals. Appoint information utilities that will collate all information about debtors to prevent serial defaulters from misusing the
system. Distribution of proceeds following liquidation of the company should be in below mentioned priority
Insolvency resolution process cost and liquidation costs to be paid in full
Clear debts owed to secured creditors
Workmen’s dues for 12 months
Unpaid dues to employees other than workmen
Financial dues owed to unsecured creditors
Government taxes for two years
Other debts
preference shareholders and equity shareholders will receive last priority for payment
SKP
Insights Deal Landscape Sectoral Focus Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 44
After Make in India, it’s time
for Start-up India
The start of the start-ups era:
Evaluation and future M&A prospects
The Start-up India campaign is based on an action plan that aims to promote bank
financing for start-up ventures to boost entrepreneurship and encourage jobs
creation. The campaign was first announced by the Prime Minister in his 15 August
2015 address from the Red Fort.
In January 2016, Prime Minister Narendra Modi unveiled a 19-point action plan for
start-up enterprises in India. He also announced a self-certification scheme related
to nine labour and environment laws. He said that there would be no inspection of
the enterprises during the first three years of the launch.
The Prime Minister’s INR 100 billion initiative, is will help potential entrepreneurs
in providing them with tax incentives and will bring the socio-economic revolution
in motion.
Many entrepreneurs were turned down by venture capitalist (VCs) and yet went on
to disrupt big markets and achieve success. Money making ideas are no longer
priority and are often challenged by the VCs. It has been observed that ideas which
were different or did not seem to be particularly worthy of investment such as
Google, Skype and Zomato, etc. became extremely successful though they were not
termed as ‘money-making ideas’.
VCs are individuals, each with their own unique experience, perspective and
thought process and hence, they do not evaluate start-ups in the same way. VC’s
evaluate start-ups with a problem-solution approach when looking to infuse money
in such companies.
What are the problems, market needs, or customer pain points being addressed?
Why is it important to solve this particular problem? For example, Ola’s decided to
create an app for addressing the problem customers faced of getting a cab from
one point to another.
Start-ups should aim to help VCs or angel investors visualise the concept and
provide clarity on its ability to execute the idea. They also check whether the
present eco-system is capable or needs to be built. Similarly, VCs have to now
evaluate Start-ups with new a perspective and look for Problem-Solution approach.
Key Statistics
4,200 start-ups, India ranks third globally.
Of USD 18 billion pumped into Indian start-ups between 2010-15, USD
9 billion came in 2015 alone.
9 Indian start-ups have been valued at more than USD 1 billion.
Increase in number of incubators: 80 in 2014, 110 in 2015; 50% outside
Delhi, Bangalore, and Mumbai.
SKP #3
Insights
SKP
Insights Deal Landscape Sectoral Focus Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 45
Start-ups can be
evaluated based on four
key decision-making
parameters which, if
substantiates growth
figures, may attract early-
stage funding.
1. Market PotentialIt’s very critical to understand the target market and its size? Whether customers in that market
will accept the product and pay for it or start-up will have to consider change in business model
which will help them realize value from the business. Also it’s important to understand whether
target market is large enough to support substantial growth/valuation.
2. Anticipation of future state
Does your start-up anticipate the future state of technologies which may change the way
business is conducted? One has to not just understand the current state of the
industry/competition/conduct but also anticipate the future technologies or solutions that
could come in your way and be prepared accordingly.
Also it’s important to understand the uniqueness or differentiated
solution offering is provided to the customer which gives you an
edge over your competitor. Similar strategy was observed in OLA
wherein it not just provide easy access to cabs but also integrated
local taxi’s and sharing services to capture mass and gain
competitive advantage.
3. Driver’s for the business
We observe that usually and especially in case of start-ups,
Promoters /management team is the driving factor for the business.
Therefore it’s crucial to understand who the management team is, how
uniquely they are qualified and whether they have required capabilities to
deliver the solution to the market.
This becomes all the more important as VC’s or PE’s will make it a
point to have promoters on board till the time they exit. In last year
we have observed that change in management acted as speed
breaker for once upon a highly growing Housing.com
4. Funding Requirements
Does your business model extensively
capture the funding requirement?
Most of the Start-ups get stuck in midst
of their business because of lack of
expertise to understand various stages
where and when the fund is required.
Therefore it is critical for early stage
investors to understand how much
money start-up plan to raise, when
they will need it and application of
same.
SKP
Insights Deal Landscape Sectoral Focus Outlook Foreword Executive Summary
SKP Investment Chronicle 2015 | 46
Valuing start-ups as early
stage investors
In the early stages, the value of the
business to an investor may seem low,
however the companies may have a lot to
offer. On the other hand, it matters to
entrepreneurs as it determines the stake
that will be diluted in exchange for
investor’s money.
1. Investors wants to see the concept working
The point of a company’s existence is to get users, and if the investor sees
users they see traction in the start-up. This is a critical point of evaluation
for the start-up, as existing users give VCs comfort on the viability of
business model.
2. Revenues
Revenues make the company easier to value and are a key
determinant to the company’s upside-potential in value. The priority
of start-ups in today’s world is not only building a sustainable
revenue pattern, but is also to grow faster than competitors. If the
growth is not at a fast pace, it would be like a traditional money-
making business
3. Burn Rate
The rate at which a new company uses up the venture capital it
receives, impacts its ability to raise capital in the future and its
valuations.
Usually companies are valued on their profitability, however, most of
the e-commerce companies are running losses and are balanced by
additional equity infused by private investors making it difficult to
value based on profitability. Thus, it is important to understand the
burn rate for series of funding required and payback for investors.
4. Where is the Exit?
The critical point VCs will like to evaluate is
where is the exit is. They would analyse
how much can this company would sell for
several years from now, and at what value.
Whether a company expects a healthy
growth or its potential to scale, at the time
of exit in order to attract the next round of
investors is always a matter of concern.
SKP
Insights
Deal Landscape
Sectoral Focus
Outlook
Foreword
Executive Summary
SKP Investment Chronicle 2015 | 47
Outlook
2016
6
SKP Investment Chronicle 2015 | 48
Factors that will drive deal
activities in 2016
Proposed Goods and Services Tax Regime
Proposed Insolvency and Bankruptcy Code
Developing ecosystem for Make in India
Safeguarding investor’s interest by enforcement
of Intellectual property and competition laws
Initiatives for Start-up India – proposed Start-up
listing platform
The year 2015, deserves the title ‘Year of Reforms’ as several new reforms were
initiated, few laws and regulations were amended and other initiatives are still
underway. The investments in 2015 witnessed higher equity investments, which
surpassed previous levels the increased volumes in the mergers and acquisitions
space.
Looking ahead, the Indian investment pipeline seems strong as confidence in the
economy continues to rise and is supported with a strong eco-system which is backed
by various government’s initiatives. We expect organic and inorganic growth to go
hand in hand and access to capital markets to continue.
With socio-economic initiatives such as Make in India, 100 Smart Cities, PPP, Skill
India, Digital India, Innovative India, Clean India, Start-up India, Stand-up India and
many others, India remains the most preferred investment destination.
Changes in the country's regulatory framework such as the SDR scheme, the proposed Insolvency and Bankruptcy Code, liberalised FDI thresholds, relaxed
sectoral reforms and the much-awaited Goods and Services Tax (GST) will possibly
accelerate deal making activity in 2016.
SKP’s Transaction Advisory Approach: An end-to-end solution
Our Team
About Us
SKP is a long established and rapidly growing professional services group located in six major cities across India. We specialise in providing sound business and tax guidance
and accounting services to international companies that are currently conducting or initiating business in India as well as those expanding overseas. We serve over 1,200 clients
including multinationals, companies listed on exchanges, privately held and family-owned businesses from more than 45 countries.
From consulting on entry strategies to implementing business set-up and M&A transactional support, the SKP team assists clients with assurance, domestic and international
tax, transfer pricing, corporate services, and finance and accounting outsourcing matters, all under one roof. Our team is dedicated to ensuring clients receive continuity of
support, right across the business lifecycle.
Deepti Ahuja | Partner
With over 13 years of experience, Deepti heads SKP’s business advisory and consulting practice. She has experience in handling advisory
assignments across several industries including banking, textiles, pharmaceuticals, manufacturing, services and non-profit entities. Deepti has
handled several valuation assignments for various purposes including mergers, regulatory, joint ventures, acquisitions, goodwill and brand. She
has led various due diligence assignments on behalf of leading multinational companies, private equity firms and venture capitalists and she has
assisted several multinationals in establishing a presence in India.
Saloni Jhaveri | Director
With over 16 years of experience in private equity and corporate finance, Saloni has executed several cross-border and domestic transactions
involving mergers, acquisitions, joint ventures, private equity funding as well as entry-strategy assignments across sectors such as healthcare,
retail, consumer and real estate. She has led deal teams to successfully close transactions involving the preparation and review of financial
models and business plans, development of transaction strategy and deal structures. She has been involved in presentations to investors/clients,
negotiation and drafting of letters of intent including key commercial terms, managing due diligence reviews, coordination with multiple advisers
and counterparties.
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