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COVID-19 has aggravated pains for deal-making, 2020 to be uncertain year: Report

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Mumbai: The COVID-19 pandemic has affected deal-making activity in India and outlook for the remainder of 2020 also appears uncertain, a consultancy firm said on Tuesday.

Deals, including those by private equity (PE) funds and also strategic mergers and acquisitions, declined 14 per cent to USD 38.4 billion in the first half of 2020 as compared to the same period last year, but were up 19 per cent from the USD 32.1 billion in second half of 2019, PwC said.

Deal activity was witnessing a slowdown towards the end of 2019 on account of factors like global challenges and concerns around India’s macroeconomic indicators, it said, adding the COVID-19 crisis has aggravated it as the pandemic has impacted all sectors and halted the operations of several industries.

“Uncertainty appears to be the underlying theme for 2020, with several PE houses and strategic players shelving their investment plans,” PwC said, giving its outlook.

PwC Partner Sanjeev Krishnan said despite this, India is viewed as a key investment destination which is evident through the high value deals over the last few months.

“While we are trying to cope with a highly dynamic situation, the overall construct of doing deals is going through a change and the focus is shifting towards value creation and enhancement,” he said.

There is a chance for deal activity to pick up towards the end of the year, it said, adding this would be possible if business operations regain some normalcy once the spread of the disease is adequately contained.

Inbound deal activity amounted to nearly USD 9 billion in the first half of 2020, a marginal decline in comparison to the year-ago period, and was led by Facebook’s USD 5.7 billion bet on Jio Platforms, it said.

Groupe ADP also contributed to inbound activity this year as it finalised its USD 1.5 billion investment in GMR Airports.

On the mergers and acquisition front, domestic deals continue to lead with a 53 per cent contribution, indicating consolidation, followed by inbound deals at 39 per cent and 2 per cent from outbound transactions and the remaining classified as “others”, it said.

“A significant portion of this consolidation is driven by stressed situations, a trend that is likely to continue for the rest of the year,” it said.

A number of businesses are facing challenges related to cash flows and investors are looking for assets at attractive valuations, it added. Like in 2019, investors will be looking for control transactions, it said, pointing out that governance concerns have led to an upward trend in buyouts over the last few years.

Telecom and technology have been the sectors with the most activity when it comes to private equity money, followed by energy and real estate.

PE exits stood at USD 1.90 billion in H1 2020, witnessing a 47 per cent decline as compared to the same period last year and a 69 per cent decline as compared to the second half of 2019, it said.

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