India may see more out-of-court merger and acquisition deals for distressed assets with the government suspending the insolvency and bankruptcy process for a year in view of the covid-19 crisis, and with banks under pressure to resolve the bad loans issue, while stretched public finances and the need to revive growth will push the government to seek more divestment options, said advisory Alvarez and Marsal (A&M) in a report titled, Deal Making During Crises: The Indian Experience.
The report said the crisis will also see technology companies with healthy balance sheets making opportunistic acquisitions at bargain rates. M&As are likely to be seen through the sale of non-core businesses, restructuring or deleveraging, besides consolidation and capital raising in financial services firms, including non-bank lenders.
“The earlier crises, such as the 2008 recession and dotcom crash, were majorly financial in nature, which involved loss of investor confidence and fall in demand. The supply side was impacted later. This is a health crisis, which has first led to a break down of the supply chain and then hit the demand side,” Nandini Chopra, managing director, A&M India, said. The earlier crises were predictable as economies were likely to bounce back once investor confidence was back, she said.
“However, the current crisis is extremely unpredictable due to the impact and duration of the pandemic. Also, there is a chance that the consumption patterns may change for goods post-covid which makes the recovery of certain sectors uncertain,” Chopra said.
According to A&M, the suspension on fresh insolvency proceedings will reduce the quantum of distressed M&As from the corporate insolvency resolution process under the Insolvency and Bankruptcy Code (IBC) for the short term. However, it also presents an opportunity for promoters and special situation funds to opt for a one-time settlement and negotiate with banks or markets to raise debt at reasonable rates.
