Mumbai – August 24, 2020 – Leading global professional services firm, Alvarez & Marsal (A&M) India, released ‘Deal-Making During Crisis – The Indian Experience,’ a white paper detailing the adverse effects of the COVID-19 lockdown on Indian capital markets and M&A activity as compared to the burst of the Dot-Com bubble (2001), the global financial crisis (2008) and demonetization (2016) crises. 

The whitepaper notes that while M&A deals in India during the ongoing Covid-19 pandemic have been renegotiated, postponed or called off, these events are not dissimilar from past crises. The whitepaper details several transformational acquisitions that occurred in past crises, in support of the A&M view that the current crisis also represents an opportunity. Further the paper delves into specific M&A themes that could play out in the current crisis while comparing these to themes that occurred during previous crises. “History doesn’t repeat, but it often rhymes” the paper mentions, quoting Mark Twain, as it compares similarities across crises such as a crash in equity capital markets, redemption pressure on bonds that could lead to restructuring, asset sales, distressed M&A. All this while acknowledging the unique nature of the current Covid crisis from specific technology sector themes, such as deal flow in e-commerce, edtech, fintech, cloud services, OTT platforms, etc. 

M&A themes arising from the COVID-19 crisis – looking ahead :

• M&A emanating from sale of non-core businesses, restructuring or deleveraging
• Technology Companies with healthy balance sheets expected to seize opportunistic acquisition opportunities  
• Consolidation expected in sectors with high financial stress
• Rise in out-of-court distressed M&A, given the suspension of initiation of fresh insolvency proceedings by government for one year
• Government divestment program expected to gather pace due to pressure on public finances
• Similar to M&A during demonetization, NBFCs and financial services companies will raise capital and merge / consolidate

Ms. Nandini Chopra, Managing Director, Alvarez & Marsal India said, “A study of performance during disruptions, prior to COVID-19 provides interesting takeaways. We observed similar M&A themes of non-core business sales, deleveraging, consolidation and, in some instances, government divestments occurred across market disruptions. Our report outlines why the future belongs to corporations willing to leverage the current environment and make transformational deals that reshape the competitive landscape of today. These insights further our ability to drive change and create value for clients through action and results.”

Key takeaways from the study of the disruptions are as follows:

1. Bursting of the Dot-Com Bubble in 2001

Between 1995 and March 2000 the private and equity market valuation of internet-based companies had reached all-time highs. However, post the anti-trust ruling against Microsoft in an anti-trust case in April 2000, investors started reassessing technology stock valuations, and the dot-com bubble finally burst resulting in technology companies facing funding constraints, scaling back operations and, in some cases, facing liquidation.

• Indian economy affected by both the global crisis and a local drought
• Almost four years for Indian equity capital markets to regain 2000-year levels
• Telecommunications and technology stocks – less favored post-crisis
• Divestment by global firms
• Government divestments /Privatization
• Transformative M&A for ABG Group, Vedanta Group and Tata Group

2. The 2008 Global Financial Crisis (GFC)

Between 2007 and 2009, the world witnessed extreme stress in global financial markets and banking systems due to high rates of defaults in U.S. sub-prime home mortgage sector. The ensuing credit crunch led to a recession in the U.S. with economies world over being affected to varying degrees.

• Global crisis but Indian economy and equity capital markets amongst the fastest to recover
• Consumer goods, technology and automobile stocks perform well while metals fall out of favor 
• Indian equity capital markets affect Foreign Currency Convertible Bonds (FCCB) issuers
• Deleveraging and restructuring-related deals
• Bargain deals
• Transformative deals for Indian technology companies as global financial services firms exit

3. Demonetization in 2016

On November 8th, 2016, India’s Prime Minister Narendra Modi announced that the country’s INR 500 and INR 1,000 currency notes would no longer be considered legal tender. The effect of this demonetization led to an overnight decline of currency banknotes in circulation causing severe scarcity in cash. 

• Economic shock restricted to India
• Strong increase in bank deposits and digital payments
• Equity capital markets recover within a few months
• No reduction in overall deal activity
• Fundraise and mergers among NBFCs
• Digital payment deals

4. COVID-19 crisis of 2020

The COVID-19 pandemic of 2020  has compelled countries across the world to implement quarantines and social distancing measures. Economic repercussions have been severe. Further, there remains significant uncertainty about the duration and impact of the pandemic

• Global health crisis unlike previous crises which originated from the financial sector
• Extreme uncertainty about the duration of health crisis
• Breakdown of supply chains that have impacted demand
• Potential for lasting change in consumption patterns
• Exacerbation of geo-political tensions could impact future investment patterns and deals 

About Alvarez & Marsal

Companies, investors and government entities around the world turn to Alvarez & Marsal (A&M) for leadership, action and results. Privately held since its founding in 1983, A&M is a leading global professional services firm that provides advisory, business performance improvement and turnaround management services. When conventional approaches are not enough to create transformation and drive change, clients seek our deep expertise and ability to deliver practical solutions to their unique problems. 

With over 4,500 people across four continents, we deliver tangible results for corporates, boards, private equity firms, law firms and government agencies facing complex challenges. Our senior leaders, and their teams, leverage A&M’s restructuring heritage to help companies act decisively, catapult growth and accelerate results. We are experienced operators, world-class consultants, former regulators and industry authorities with a shared commitment to telling clients what’s really needed for turning change into a strategic business asset, managing risk and unlocking value at every stage of growth.

To learn more, visit: AlvarezandMarsal.com. Follow A&M on LinkedIn, Twitter and Facebook. 

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CONTACT: 

Jaison Rebello, PR Contact for A&M
Edelman, +91 8286939726, Jaison.rebello@edelman.com

Sandra Sokoloff, Senior Director of Global Public Relations
Alvarez & Marsal, +1 917-940-8361

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