M&A deals double, but execution holds the key for investors: Crisil Ratings

Mergers and acquisitions are increasingly becoming a core growth strategy for India Inc, with annual deal volumes more than doubling since fiscal 2017, as companies look to scale faster, enter new markets and acquire capabilities that could take years to build organically, according to Crisil Ratings.

For investors, however, the key differentiator is execution, it said. The ratings firm said its review of 100 large debt-funded acquisitions found that two in three 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.

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.


The increase in M&A activity comes against a stronger credit backdrop. Moderating organic capex, lower leverage and prudent funding have strengthened balance-sheet flexibility and improved companies’ ability to absorb acquisition-related risks.

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.

“Indian corporates are increasingly using M&As to accelerate growth, expand market access and acquire capabilities that would take years to build organically,” said Subodh Rai, Managing Director, Crisil Ratings.

M&A activity is being driven by different priorities across sectors. 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.

Acquisitions have largely resulted in stable or positive credit outcomes, Crisil said. Around three-fourths of ratings were reaffirmed or upgraded following acquisitions, while about 60% of acquirers deleveraged on or ahead of plan within two years.

Manish Gupta, Deputy Chief Ratings Officer, Crisil Ratings, said the benefits of scale, diversification and synergies helped offset the temporary increase in acquisition-related leverage. Where outcomes were weaker, common reasons included elevated leverage, slower ramp-up, industry downcycles and regulatory delays.

The long-term value creation from M&As, Crisil said, will depend on disciplined capital allocation, strong execution, timely synergy capture and continued investment in core capabilities.

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