Indian companies step up acquisitions for AI, technology and talent: Crisil

Indian companies across sectors such as artificial intelligence, enterprise technology, pharmaceuticals and consumer businesses are increasingly turning to acquisitions to gain technology, talent and intellectual property capabilities as merger and acquisition activity broadens across India Inc, according to Crisil Ratings.

The ratings agency said mergers and acquisitions are evolving from an occasional growth option into a core strategic tool for companies seeking to scale faster, enter new markets and acquire capabilities that would take longer to build internally.

"Indian corporates are increasingly using M&As to accelerate growth, expand market access and acquire capabilities that would take years to build organically. This is reflected in annual deal volumes, which have more than doubled since fiscal 2017," Subodh Rai, managing director, Crisil Ratings, said.


Crisil's analysis covers around 600 deals valued above Rs 500 crore each across 20 sectors, excluding financial services, infrastructure, private equity-led and inbound transactions.

The acquisition strategy varies across sectors. Pharma and healthcare, enterprise technology, artificial intelligence and consumer businesses are using deals to bridge gaps in technology, talent and intellectual property. Cement and metals companies, meanwhile, are pursuing acquisitions for consolidation and to shorten build timelines from four-six years to one-three years.

Crisil said the current M&A cycle is also being supported by stronger corporate balance sheets. Moderating organic capital expenditure, lower leverage and prudent funding have improved companies' ability to absorb acquisition-related risks. Median net debt-to-Ebitda among around 3,200 Crisil-rated companies is estimated at about 1.3 times in the last fiscal, compared with about 2.4 times in fiscal 2017.

However, execution remains critical. A review by Crisil of 100 large debt-funded deals found that two in three broadly met its expectations.

"Successful ones delivered 20-80% scale expansion within one-two years, widened geographic reach and improved margins from the second year as synergies materialised," Rai said.

Among the remaining one-third that fell short of intended business outcomes, integration challenges accounted for about half the cases, while regulatory delays and cross-border execution issues contributed roughly one-fifth each.

Credit outcomes following acquisitions have also largely remained resilient.

"Around three-fourths of ratings were reaffirmed or upgraded following acquisitions, and about 60% of acquirers deleveraged on or ahead of plan within two years," Manish Gupta, Deputy Chief Ratings Officer at Crisil Ratings, said.

Looking ahead, Crisil said India Inc's success will depend on balancing acquisition-led expansion with organic capability building, while continuing to invest in innovation, technology and competitive strength.

"While M&As can accelerate growth, long-term value creation will hinge on disciplined capital allocation, strong execution and sustained investment in core capabilities," the ratings agency said.