Deferral of M&A deals to continue due to uncertain biz environment, says advisory firm

Amid uncertain business environment and liquidity pressure arising due to the coronavirus crisis, merger and acquisition (M&A) deals will continue to see deferral or cancellation in the short term as buyers assess the impact of the lockdown, advisory firm Alvarez & Marsal said.

Amid uncertain business environment and liquidity pressure arising due to the coronavirus crisis, merger and acquisition (M&A) deals will continue to see deferral or cancellation in the short term as buyers assess the impact of the lockdown, advisory firm Alvarez & Marsal said. A significant number of M&A deals were either deferred or canceled between April and July, as the nationwide lockdown imposed to curb the spread of the deadly coronavirus, negatively impacted the economic activities and businesses. Adani Logistic's purchase of Gateway Distripark's 40 per cent stake in Snowman Logistics was canceled, while Vedanta's plan to sell a minority stake in its Indian oil unit, Cairn Oil & Gas, has reportedly stalled following the collapse in global crude prices amid the coronavirus pandemic, the advisory firm said. In May 2020, Adani Power received a delisting proposal from its promoter group Adani Properties, while Mahindra & Mahindra decided to infuse a significantly lower amount of equity into its Korean arm, SsangYong Motor Company, altering earlier plans, it added. Sajjan Jindal-backed JSW Energy also terminated its Rs 5,321 crore deal to acquire GMR Kamalanga Energy due to Covid-19 related uncertainties.

"In our view, deals will continue to see deferral or cancellation in the short term as buyers assess the impact of the great lockdown. As greater clarity emerges on the impact of the lockdown, new deals will follow with a mix of familiar crisis M&A themes and new themes that are unique to the current environment," the advisory firm said. However, the agency noted that the suspension of initiation of fresh insolvency proceedings by government for one year amid the COVID-19 crisis presents an opportunity for promoters for one time settlement.

At the same time, out-of-court distressed mergers and acquisitions will also likely increase given the suspension of fresh insolvency proceeding. According to the firm, sectors such as healthcare, insurance, business services and technology are seeing strong interest. "Pharma and specialty chemicals are another possible area of M&A interest, especially if supply chains are reoriented from China to India. Potential privatization of non-strategic public sector undertakings has already been announced, and previous divestment programs that have been delayed, such as Air India, might now be revived," it said.