investment chronicle april to june 2019...2 investment chronicle e april - june 2019 we are pleased...

Investment Chronicle

April - June 2019

skpgroup.com

2

Investment Chronicle April - June 2019

We are pleased to present SKP Investment Chronicle – our quarterly update that focuses on the deal-making landscape in India, comprising Mergers and Acquisitions (M&A), equity investments, and exits. In this report, we look at India’s transactions arena in the second quarter of 2019.

The first quarter of 2019 began on a relatively cautious note with the deal landscape measuring USD 16.6 billion mainly on account of decline in Inbound M&A investments and Private Equity exits. The deal value increased marginally in Q2 2019 to USD 18.1 billion. However, as compared to same quarter last year, a sharp decline of 66% was observed.

This quarter’s deals were primarily focused on the Financials and the Information Technology sector.

Investments in the consumer discretionary and consumer staples sectors observed a notable decline.

In the first week of July, Nirmala Sitharaman presented the budget on behalf of Modi Government 2.0 where there were numerous aspiring proposals for the overall development with focus on infrastructure, education, financial service sector, agriculture and rural development which forms the backbone of the Indian economy.

One of the key proposals of budget 2019 was the allowance of Foreign Portfolio Investors (FPIs) in listed debt securities issued by Infrastructure Investment Trusts (INVITs) and Real Estate Investment Trusts (REITs). Due to this, we for-see an

increase in the deal volumes in the Real Estate sector.

The Government is also examining to relax the foreign direct investment (FDI) norms for various sectors such as media, aviation, insurance, and single-brand retail, which might see some momentum in overseas investments.

As a measure of relief for start-ups, the Finance Minister in her speech mentioned that the angel tax issue would not be scrutinized by tax authorities if requisite declarations and information are made available in return. Angel tax is income tax levied on the capital raised via the issue of shares by unlisted companies from an Indian investor if the share price of issued shares is more than over the fair market value of the shares.This may boost the sentiments of the angel investors.

Overall investors were cautious in the first half of 2019. However with the stable government coming in and the major initiatives in pipeline, we expect increased interest of overseas investors.

Foreword

Maulik DoshiSenior Executive Director

Transaction Advisory

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April - June 2019 Investment Chronicle

Quarterly Compass

Deal Trends (Volume/Value) (USD million)

Quarter Highlights

Average M&A

Deal Value

USD 52.49 million

Top M&A Deal Value

USD 4,114million

Top EInv Deal Value

USD 708 million

M&A CAGR (4 years)

6%

Hot Sector

Information Technology

Top Outbound Partner

USA

Average EInv

Deal Value

USD 25.95 million

Top PEE Deal Value

USD 360 million

EInv CAGR (4 years)

20%

Emerging Segment

Utilities

M&A - Merger & Acquisitions EInv - Equity InvestmentsPEE - Private Equity Exits

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Mergers and Acquisitions

Deal Buyer Target Type Value % Sought Sector

1 Lakshmi Vilas Bank Ltd Indiabulls Housing Finance Domestic 4,114.0 100% Financials

2 Streamcast Group Rolta BI and Big Data Analytics Domestic 784.5 NA Information Technology

3 Nippon Life Insurance Co Reliance Nippon Life Asset Management Inbound 647.8 31.9% Financials

4 ZF Friedrichshafen AG Wabco India Inbound 430.7 25.0% Consumer Discretionary

5 Oravel Stays Pvt. Ltd. Leisure Holding B.V. Outbound 414.0 51.0% Information Technology

Keeping momentum with the first quarter of the year, Q2 2019 witnessed 198 deals amounting to USD 10,394 million as against USD 9,063 million from 199 deals in Q1 2019, as investors continued to remain cautious.

At 71% share of total deal value, Information Technology and Financials sectors dominated the M&A landscape this quarter, primarily on account of domestic and inbound transactions. The quarter also witnessed a 22% increase in Outbound M&As compared to the previous quarter.

With the increase in the rejection rate of US H-1B visa, Indian tech companies have begun acquisition of IT companies in the US. In Q2 2019 M&A deal value in IT sector increased to USD 859 million as compared to USD 163 million in Q1 2019. Furthermore, Q2 2019 also had the highest deal value in the last nine quarters except for Q4 2018, which was primarily on account of one massive deal of USD 1,775 million.

M&A activities are expected to be impacted on account of the new budget by Modi Government 2.0. Angel tax assessment would not undergo scrutiny in respect of valuations of share premiums from the income

Total Deal Volume198

Total Deal ValueUSD 10,394 million

Top SectorFinancials

Top RegionMaharashtra

Top Outbound CountryUSA

(USD million)

tax department provided requisite documents are submitted by the start-ups and the investors. The budget has also proposed relaxations to the foreign investment in aviation, insurance, insurance intermediaries, and single-brand retail sectors.

While 2018 witnessed significant growth in the domestic M&A activity,

we foresee 2019 to be a year for cross border transactions owing to technology and e-commerce advancements. Furthermore, India has seen an increase in cross border deals, both inbound and outbound. Also, with Make in India and the new government’s budget, the M&A activity is bound to gain more momentum.

(USD million)

5


Prime Deals

In April 2019, it was announced that Lakshmi Vilas Bank (LVB) would be merged with Indiabulls Housing Finance (Indiabulls) in an all-stock deal. Subsequently, the agreement was amended, and it was decided that Indiabulls would be merged into LVB. The merged entity would be called Indiabulls Lakshmi Vilas Bank and would be amongst the top private banks in India concerning their profitability and size. The shareholders of Indiabulls will get 7.143 shares of LVB for each share held.

The transaction will increase the geographic presence of the merged entity as Indiabulls has a strong presence in the North and West India as compared to LVB’s dominance in the south. For Indiabulls, this merger would allow them to access low-cost deposits and enable them to grow their loan book through various consumer loan products and create new fee generation opportunities. LVB Ltd’s shorter tenure loans coupled with Indiabulls’ longer maturity book will ensure asset-liability mismatch optimization and evenly distribute the risk profile.

Complementary business models would help the merged entity to achieve product and geographic diversification. The proposed merger, which has received approval from the Competition Commission of India (CCI), is still subject to approval from RBI.

Target: Indiabulls Housing Finance Ltd

SECTOR Financials

Buyer: Lakshmi Vilas Bank Ltd

DEAL VALUE USD 4,114 mn

DEAL TYPE Domestic

% SHARE 100%

RATIONALE Geographic Expansion

DEAL HIGHLIGHTS

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Equity Investments


1 Baring Asia Private Equity Fund VII NIIT Technologies Public

Equity 707.9 55.9% Information Technology

2 GIC Pvt Ltd, Abu Dhabi Investment Council Greenko Energy Holdings Private

Equity 495.0 NA Utilities

3 Blackstone Capital Partners Asia LP Essel Propack Public

Equity 461.7 75% Materials

4 GICThe Indian Hotels Company and GIC, Investment Platform JV

Private Equity 397.6 70% Financials

5 GIC Pvt Ltd, KKR India Advisors India Grid Trust Public Equity 361.1 51.1% Financials

2019 began on a positive note with 217 transactions amounting to USD 7,392 million in Q1. However, in Q2 2019, while private equity investments witnessed an increase in deal volume to 266, deal value declined to USD 6,903 million.

Even though the private equity investments went down from 66% to 34% of the total investment pie, it continued to outperform the other investment routes. On the other hand, public equity investment improved from 8% to 27% despite volatile market conditions. During the quarter, Financials, Information Technology, and Utilities sectors attracted the highest investments value while Information Technology, Consumer Discretionary, and Financials industry lead in terms of volume.

With the growth in private equity investment and leasing activity, warehousing has witnessed rapid growth. The key factors driving PE players’ interest in logistics and warehousing are government policies, strong economic fundamentals, and the growth in organized retail and e-commerce. The increase in e-commerce activity has caused a corresponding rise in demand for logistics and warehousing.

As mentioned in the budget by the Finance Minister, Nirmala Sitharaman, about simplifying regulatory hurdles and opening up FDI in aviation, media, and insurance, India’s ability to attract investments will gain several points.

To promote ‘Make in India,’ easier regulations for FDI in contract manufacturing and 100 percent FDI in Information Utilities is being considered actively.

Total Deal Volume266

Total Deal ValueUSD 6,903 million


Emerging SegmentInternet Software & Services


(USD million)

With a high level of public spending expected in core sectors in the year, private equity deal volumes are estimated to further pick up in the latter half of the year. Furthermore, the volatile market is expected to create a wide variety of opportunities for investors, including capital solutions, as well as distressed asset sale opportunities.

(USD million)

7


Prime Deals

On 7 April 2019, Baring Private Equity Asia (BPEA) reached an agreement to buy 30% shareholding on a fully diluted basis in the IT solutions firm, NIIT Technologies from NIIT Ltd and other promoters for INR 1,394 per share. The deal price per share was 3.3% higher than the BSE price at the close of Friday 6 April 2019.

Furthermore, in compliance with the SEBI regulations in India, BPEA made an open offer to purchase up to 26% additional shareholding to the public shareholders of NIIT Technologies for INR 1,394 per share. Thus the aggregate ownership was approximately 56%. BPEA has also planned to increase the stake further. Hence, it plans to buy from the company’s shareholders to 35% from 26%, which begins on 15 July and closes on 26 July.

NIIT Technologies is an IT solutions organization, offering services, including application development and maintenance, infrastructure management, and business process management. The involvement of BPEA will help the management team led by CEO, Sudhir Singh, to reach the next level of growth.

Indian Hotels Co (IHCL) and Singapore’s sovereign wealth fund GIC has set up a three-year, INR 40 billion investment platform to acquire hotels in luxury, upper-upscale, and upscale segments.

The asset represents an investment platform set up by The Indian Hotels Company Ltd, and GIC Pvt Ltd. This platform will be useful to obtain fully operational hotels, mostly in luxury, upper-upscale, and upscale segments in India. This platform allows the Indian Hotels Company Limited to pursue acquisitions in an asset-light format. GIC will contribute 70% of the money to the investment platform while Indian Hotels will chip in with the remaining amount over three years. The asset is based in India.

IHCL said it would sell non-core assets and become less ownership-driven as part of its Aspiration 2022 strategy, which was announced in February last year. The company will not own as much as 60% of the properties it runs by 2022.

Target: NIIT Technologies Ltd

SECTOR Information Technology

Buyer: Baring Asia Private Equity Fund VII

DEAL VALUE USD 707.94 mn

DEAL TYPE Private Equity

% SHARE 55.90%

RATIONALE Geographic Expansion

Target: The Indian Hotels Company Ltd and GIC Pvt Ltd, Investment Platform JV

SECTOR Financials

Buyer: GIC Pvt Ltd


% SHARE 70%

RATIONALE Growth acceleration

DEAL HIGHLIGHTS DEAL HIGHLIGHTS

DEAL TYPE Private Equity

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Private Equity Exits

The private equity exists increased by over five times in value in Q2 2019 from USD 162 million to USD 853 million. However, the deal count reduced from 32 to 28 in Q2 vs. Q1 2019. Q2 2019 witnessed big-ticket exists primarily through IPOs and open markets.

Private equity exits from the financials sector and information technology sector contributed 90% of the value of exits this quarter, followed by industrials and consumer discretionary, while information technology continued to lead in terms of volume.

In keeping with the trend of 2018, Open Market transactions dominated, as the most favorable exit route for investors, accounting for 55% of the overall exit value. In Q2 2019, exits through IPOs have witnessed a significant increase vs. Q1 2019, primarily due to the departure of Bain Capital from Genpact Ltd.

This quarter’s performance has improved over the last quarter’s, global investors with a long-term investment horizon have made profitable exits from the Indian market in recent times and continue to retain a positive outlook on the future.

The general notion, driven by the attractiveness of the Indian market from a growth perspective, have given some confidence to investors to realize significant returns on their investments in five to seven years.


1 Bain Capital LLC, GIC Pvt Ltd Genpact Ltd Initial Public Offering 360.1 5.2% Information Technology

2 Warburg Pincus LLC ICICI Lombard General Insurance Company Open Market 226.2 3.1% Financials

3 GIC Pvt Ltd DLF Open Market 187.0 3.4% Financials

4 Kedaara Capital Fund Mahindra Logistics Open Market 47.0 9.4% Industrials

5 Carlyle Asia Growth Partners III LP Allsec Technologies M&A 14.2 26.0% Information Technology

Total Deal Volume28

Total Deal ValueUSD 853 million


Emerging SegmentData Processing & Outsourced Services


(USD million)

(USD million)

*Others primarily includes exit through buy-back and IPO

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Target: Genpact Ltd

Buyer: Bain Capital LLC, GIC Pvt Ltd

DEAL HIGHLIGHTS DEAL HIGHLIGHTS

Prime Deals

US-based private equity firm, Warburg Pincus further sold a 3.15% stake in the nation’s largest private general insurer, ICICI Lombard General Insurance Company Ltd.

The investment, held by Warburg Pincus’ firm Red Bloom Investment, sold a total of 14.3 million shares for INR 1,100.2 per share representing 3.14% stake for a total consideration of USD 226.24 million.

Warburg Pincus’ stake in the ICICI Lombard General Insurance Company Ltd has declined from 9% in September 2018 to 2.71% in May.

Post-transaction, Warburg Pincus will hold 12,281,312 Equity Shares representing a 2.69% stake in the company.

SECTOR Financials


% SHARE 3.15%

RATIONALE Return on investment

DEAL TYPE Open Market

Bain Capital LLC, one of the top-ranked multi-asset alternative investment firms, and GIC Pvt Ltd (formerly Government of Singapore Investment Corporation Pte Ltd) is a private equity and venture capital firm, which sold 8,500,194 and 1,499,806 equity shares, each representing 4.5% stake and 0.8% stake respectively in Genpact Ltd. Post this transaction, Bain Capital holds 23,537,808 Equity Shares representing 12.24% stake and GIC owns 4,162,058 Equity Shares representing 2.2% stake.

Genpact Ltd (previously known as GE Capital International Services), engaged in providing business process outsourcing and information technology (IT) management services worldwide.

Investment by Bain Capital and GIC Pvt Ltd in Genpact Ltd dates back to the year 2012 where Bain Capital LLC, through its affiliate South Asia Private Investments and GIC Special Investments Pte Ltd, invested USD1 billion (INR 55.5 billion) in the Gurgaon-based Genpact Ltd, to acquire 30% stake from General Atlantic LLC and Oak Hill Capital Partners II LP, a fund managed by Oak Hill Capital Partners.

SECTOR Consumer Discretionary


DEAL TYPE Initial Public Offering

% SHARE 5.25%

RATIONALE Return on investment

Target: ICICI Lombard General Insurance Company Ltd

Buyer: Warburg Pincus LLC

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Sector Insights

Consumer StaplesM&A USD 34.04 million 10 Deals

EInv USD 95.23 million 21 Deals

PEE USD 6.57 million 3 Deals

Consumer DiscretionaryM&A USD 809.16 million 32 Deals



TelecommunicationM&A - 1 Deal

EInv - -

PEE - -

MaterialsM&A USD 449.08 million 16 Deals

EInv USD 461.41 million 1 Deal

PEE - -

UtilitiesM&A USD 682.54 million 11 Deals


PEE - 1 Deal

IndustrialM&A USD 460.15 million 40 Deals



Information TechnologyM&A USD 1,901.91 million 53 Deals

EInv USD 2,096.57 million 121 Deals


HealthcareM&A USD 589.46 million 11 Deals


PEE - 2 Deals

EnergyM&A - 2 Deals

EInv - -

PEE - -

FinancialsM&A USD 5,467.26million 22 Deals

EInv USD 2,105.72 million 34 Deals


Bird's Eye View

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Sectoral Panorama

SectorQ2 2017 Q2 2018 Q1 2019 Q2 2019 Weights

Movement in Value*

Value Deals Value Deals Value Deals Value Deals Q1 2019

Q2 2019

Consumer Discretionary 5,319 105 24,739 105 2,452 83 1,374 87 15% 8% -44%

Consumer Staples 261 37 634 29 465 32 136 34 3% 1% -71%

Energy 37 3 - 3 105 3 - 2 1% 0% -100%

Financials 3,574 60 1,859 75 6,241 48 7.986 60 38% 44% 35%

Healthcare 589 42 1,102 41 854 31 765 34 5% 4% -9%

Industrials 1,433 68 2,944 57 2,630 56 1,016 58 16% 6% -61%

Information Technology 2,865 238 5,953 187 3,351 159 4,373 183 20% 24% 27%

Materials 600 20 2,762 27 296 15 910 17 2% 5% 208%

Telecom 5 1 6,756 4 10 6 - 1 0% 0% -100%

Utilities 876 8 599 15 213 15 1,589 16 1% 9% -645%

Total 15,561 582 47,348 543 16,617 448 18,149 492 100% 100% 9%

* The movement mentioned above is a comparison between Q2 2019 and Q1 2019.

(USD million)

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Indian Terrain

Consumer Discretionary

IT & ITES Healthcare

Industrials

Materials Financials

Utilities Consumer Staples

Top five states by transactions (Domestic + Inbound Deals)HaryanaM&A USD 652 million 9 Deals

PEI USD 510 million 31 Deals

PEE USD 510 million 2 Deals

Top Sectors

5 Deals19 Deals

3 Deals

5 Deals

4 Deals

MaharashtraM&A USD 6,440 million 61 Deals

PEI USD 1,815 million 62 Deals


Top Sectors

27 Deals29 Deals

13 Deals

29 Deals

15 Deals

KarnatakaM&A USD 337 million 19 Deals

PEI USD 1,027 million 73 Deals

PEE - 3 Deals

Top Sectors

10 Deals53 Deals

4 Deals

16 Deals

8 Deals

DelhiM&A USD 358 million 15 Deals



Top Sectors

4 Deals16 Deals 14 Deals

4 Deals

Tamil NaduM&A USD 845 million 16 Deals



Top Sectors

8 Deals9 Deals

1 Deals

8 Deals

6 Deals

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Cross-border Transactions

Oravel Stays Pvt Ltd acquired a majority stake in Leisure Holding B.V.

Deal value: USD 413.98 million

% Sought: 51%

Sector: Information Technology

Oravel Stays Pvt Ltd, aka OYO, acquired a majority stake in Netherlands-based online holiday rentals booking company Leisure Holding B.V.

As part of the acquisition, Axel Springer will sell its 51% stake in the company for a total consideration of approximately USD201.67 million (EUR 180 million) including the repayment of a shareholder loan of around USD67.22 million (EUR 60 million). Tobias Wann, Chief Executive Officer at Leisure Holding, will become Chief Executive Officer of Vacation Homes at Oravel Stays.

Top countries by deal volume

Reliance Brands Ltd to acquire Hamleys Global Holdings Ltd.


% Sought: 100%

Sector: Consumer Discretionary

Mumbai’s Reliance Brands Ltd agreed to acquire UK-based toy retailer, Hamleys Global Holdings Ltd from C Banner International. Post-transaction, Hamleys Global Holdings Ltd will operate as a subsidiary of Reliance Brands Ltd.

This acquisition will catapult the buyer to be a significant player in the global toy retail industry. The deal adds to Reliance's growing shopping basket. The worldwide acquisition of the iconic Hamleys brand places Reliance on the frontline of global retail.

TCS will acquire a stake in Tata consultancy Services Japan Ltd from Mitsubishi Corporation


% Sought: 15%


The increased equity is the most recent investment made by TCS in recent years to cater to the specific needs of Japanese corporations. To increase the local workforce and gain scale, a Japan-centric Delivery Centre (JDC), having enhanced language support and heavy localization of global business practice, was set up in 2015.

The change in shareholding will not affect TCS Japan’s operations and management.

USA

Netherlands

UK

Deal Volume: 9 Deals Deal Value: USD 415.45 mnTop Sector: IT & ITES

Deal Volume: 1 DealDeal Value: USD 413.98 mnTop Sector: IT & ITES

Deal Volume: 1 DealDeal Value: USD 88.74 mnTop Sector: Consumer Discretionary

Hexaware Technologies Ltd acquired Mobiquity Inc.

Deal value: USD 184 million

% Sought: 100%


IT services company named Hexaware Technologies Ltd has acquired US-based digital services firm Mobiquity for USD182 million in an all-cash deal.

Mobiquity has its presence across three continents, is an independent customer experience consulting firm specializing in using cloud technology to create smooth multi-channel digital experiences.

Post the transaction, Mobiquity Inc.'s leadership and teams would continue without any changes to the structure or ways of working.

Persistent Systems Ltd acquired Youperience GmbH


% Sought: 100%


Persistent Systems Ltd through Persistent Systems Germany GmbH acquired Youperience GmbH for USD5.46 million.

As a part of the transaction, Persistent Systems Germany GmbH, through this acquisition of Youperience, has also acquired 30% shareholding in Youperience Ltd, UK, affiliate of Youperience as a part of this deal structure.

The acquisition would strengthen Persistent's Salesforce practice in Europe and the Salesforce Marketing Cloud domain.

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SKP Transaction Advisory

Set and Define the Objective

Partner Identification

Initial Handshake

Valuation Binding Term Sheet

Due Diligence

Post Acquisition Integration

Transaction Closure Regulatory Clearances

Definitive Agreement

Transaction Structuring

Final Negotiation

Since inception, our founders have emphasized on professional standards and personalized service; and we continue to reflect this progressive mind-set by offering customized solutions to our clients across diverse industries with quality, integrity and respect.

Stemming from our client’s needs, we provide services that address all the aspects relevant to a business right from conceptualization to implementation and operations.

AcknowledgmentHarshal ChoudharySaloni Master

15


Recent SKP Credentials

Fleet Management

Provided economic advisory support and prepared an economic assessment report for an alleged abuse of dominant position and predatory pricing by a leading taxi aggregator in India.

FinTech

Financial advisory for a FinTech start-up focusing on innovative lending to the Small & Medium Enterprises using a dynamic co-lending model.

Telecom Operators

Economic advisory on Submission of a competition assessment report for a Form II filing about a proposed USD 20 billion merger between leading telecom operators in India. The transaction was unconditionally cleared by the CCI.

e-Commerce

Financial advisory in relation to an Indian e-commerce giant for a leading alternate asset manager, with multiple investments in the Indian e-commerce industry for financial reporting.

Online Gaming

Financial and Tax due diligence for an large Indian sports entertainment venture on a company engaged in Online Rummy cards gaming platform.

Medical Device

Financial and Tax due diligence of an Indian importer of cardiovascular and neurovascular products for a French manufacturer eying for forward integration in India.

Publications

Investment Chronicle

July – September 2018January – December 2018January – March 2019

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Disclaimer: SKP’s Investment Chronicle summarises the list of deals announced based on information available in the public domain and the VCCEdge database. For our analysis, 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.

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investment chronicle april to june 2019...2 investment chronicle e april - june 2019 we are pleased...

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