India Inc M&A Surges: Tech & AI Talent Acquisition Drives Growth

Indian companies are increasingly leveraging mergers and acquisitions (M&A) as a strategic tool to accelerate growth, gain access to new technologies, and expand into new markets. A new report by Crisil Ratings indicates that the annual volume of M&A deals has more than doubled since fiscal year 2017, marking a significant shift in corporate strategy.

This M&A surge extends beyond mere expansion, with firms actively pursuing deals for specialized talent, intellectual property, and advanced technologies that would otherwise take years to develop organically.

Strategic Drivers and Sector Focus

Crisil’s analysis, which covered approximately 600 deals each valued over Rs 500 crore across 20 sectors, highlights a clear intent to acquire capabilities.

• Pharmaceutical, healthcare, AI, and enterprise technology firms primarily seek capabilities and intellectual property.
• Consumer businesses utilize acquisitions to strengthen market presence.
• Cement and metals companies pursue deals for consolidation and to accelerate capacity creation.

Subodh Rai, MD at Crisil Ratings, affirmed that M&As enable Indian corporates to expedite growth, broaden market reach, and acquire capabilities more rapidly than organic development. This strategy can reduce the time needed to build new capacity from an estimated four to six years down to one to three years.

Key Numbers & Financial Underpinnings

A crucial factor supporting this M&A boom is the improved health of corporate balance sheets across India.

• M&A deal volume has more than doubled since fiscal year 2017.
• Capacity building time can be reduced from 4-6 years to 1-3 years via M&A.
• The median net debt-to-EBITDA ratio for Crisil-rated companies improved to about 1.3 times last fiscal year from approximately 2.4 times in fiscal 2017.

This financial robustness, observed across around 3,200 Crisil-rated companies, provides the necessary backing for aggressive acquisition strategies.

Outcomes and Integration Challenges

While M&A offers significant advantages, Crisil cautions that deal completion does not guarantee success. A review of 100 large debt-funded acquisitions revealed that roughly two-thirds met expectations.

• Successful transactions typically resulted in a 20% to 80% scale expansion within one to two years.
• Margins often improved from the second year due to emerging synergies.
• About half of underperforming deals were due to integration problems.
• Regulatory delays and cross-border execution issues each contributed to about one-fifth of the failures.

Despite these challenges, credit profiles have largely remained robust, with about three-fourths of ratings reaffirmed or upgraded post-acquisition. Furthermore, around 60% of acquiring companies managed to deleverage on or ahead of schedule within two years. The future growth of M&A in India will hinge on disciplined capital allocation, effective integration strategies, and continuous investment in internal capabilities, according to Crisil.