India Inc's annual mergers and acquisitions volumes have more than doubled since fiscal 2017 as companies pursue faster growth, market expansion and new capabilities. According to Crisil Ratings, companies are increasingly using M&As to scale operations, enter new markets and acquire capabilities that could take years to build organically. The surge in M&A activity comes against a stronger credit backdrop, with moderating organic capex, lower leverage and prudent funding strengthening balance-sheet flexibility. As per Crisil Ratings, Indian corporates are increasingly using M&As to accelerate growth, expand market access and acquire capabilities that would take years to build organically. The trend is particularly evident as companies increasingly acquire technology and talent through strategic acquisitions to accelerate their growth trajectories.
The latest analysis reveals that Indian companies are increasingly turning to mergers and acquisitions as a faster route to growth, technology and new market opportunities, with annual deal volumes more than doubling since fiscal 2017. According to Crisil Ratings, acquisitions are no longer being used solely for expansion. Companies across artificial intelligence, enterprise technology, pharmaceuticals, healthcare and consumer businesses are using deals to acquire specialised talent, intellectual property and technology that could take years to develop internally. The shift reflects a broader change in corporate strategy, with pharma, healthcare, AI and enterprise technology companies primarily pursuing acquisitions to gain capabilities and intellectual property, while consumer businesses use acquisitions to strengthen their market position.
Crisil's review of 100 large debt-funded acquisitions found that two in three deals broadly met expectations, with successful deals delivering 20-80% scale expansion within 1-2 years, wider geographic reach and margin improvement from the second year as synergies materialised. However, the remaining one-third fell short of intended business outcomes. Integration challenges accounted for about half of these cases, while regulatory delays and cross-border execution issues each contributed to roughly one-fifth of the underperforming deals. According to Manish Gupta, Deputy Chief Ratings Officer at Crisil Ratings, where outcomes were weaker, common reasons included elevated leverage, slower ramp-up, industry downcycles and regulatory delays. The benefits of scale, diversification and synergies helped offset the temporary increase in acquisition-related leverage, with successful deals expanding scale and improving margins after synergies kicked in.
The increase in M&A activity coincides with significant improvement in corporate credit profiles. According to Crisil Ratings, the median net debt-to-Ebitda for corporates rated by Crisil is estimated at around 1.3 times last fiscal, compared with around 2.4 times in fiscal 2017. Around three-fourths of ratings were reaffirmed or upgraded following acquisitions, while about 25% were downgraded, with the remaining 60% of acquirers deleveraging on or ahead of plan within two years. The benefits of scale, diversification and synergies helped offset the temporary increase in acquisition-related leverage. As per Subodh Rai, Managing Director at Crisil Ratings, the benefits of scale, diversification and synergies helped offset the temporary increase in acquisition-related leverage.
The analysis covered about 600 M&A deals worth more than ₹500 crore across 20 sectors, excluding financial services, infrastructure, private equity-led and inbound transactions. According to Crisil Ratings, consolidation accounted for 36% of the strategic rationale for deals, followed by capability acquisition at 18%, market expansion at 17% and vertical integration at 13%. M&A activity is being driven by different priorities across sectors, with Crisil Ratings noting that pharma and healthcare, enterprise technology, artificial intelligence and consumer companies are using acquisitions to bridge technology, talent and intellectual-property gaps. Cement and metals companies are pursuing acquisitions for consolidation, reducing build times from 4-6 years to 1-3 years. The long-term value creation from M&As will depend on disciplined capital allocation, strong execution, timely synergy capture and continued investment in core capabilities.
