How is the current M&A landscape in the consumer sector? Is there an uptick in the deals Rothschild & Co is advising on in India?

I would say M&A activity in the consumer sector has seen an uptick over time. This is one of the few sectors where we see significant interest from both private equity funds and strategic investors. Historically the challenge has been the lack of assets available for M&A. That seems to have changed. We have seen a wide pool of buyers showing interest in the inorganic route, including international players. We have also seen a willingness to pay attractive valuations for assets. If one looks at some of the deals over the last 2-3 years, we have seen pretty punchy outcomes in valuations. We have also seen a pretty reasonable amount of private equity activity in this sector. Within consumer, there has been strong M&A activity in segments including food and beverage, and beauty and personal care. We have also seen a fair bit of activity in the B2B consumer segments that are essentially suppliers to branded players

The level of M&A activity in the consumer sector will be less about buyer interest and financing and more about availability of assets. For us, globally, the consumer sector is the biggest amongst the core sectors. In India, in the last five to six years, there has certainly been a pick-up in activity in the consumer sector for us, in terms of the volume of transactions we are advising on.

Will this result in a wave of consolidations?

There’s a clear recognition that growing brands organically in India is just extremely time-consuming and, therefore, in certain categories it just makes a lot of sense to do M&A, both from an industrial and from a financial standpoint. The rate of consolidation or M&A will really be a function of asset availability.

Are there enough potential assets for M&A in the consumer sector ?

I would say it’s better than five years ago. But if you’re asking whether the pipeline of assets is as vibrant as in some of the other sectors, I would say not yet, and there’s a reason for that. Fundamentally, consumer is an asset-light sector; it’s a cash-generating business that does not need too much capex. Working-capital cycles are typically very low, which means that if I am the owner of a mid-size consumer asset, frankly it’s not like I’m putting more capital to work every year. If the business keeps growing, the trigger for an owner to sell is less compared to some of the other sectors. So, unless somebody gives the owner a really attractive valuation, they might as well carry on with business.

What about the trend of international companies getting onto the IPO bandwagon in India?

We are seeing scaled-up businesses in the consumer sector wanting to tap capital markets. The consumer sector valuations, too, have been pretty attractive. The trend of MNC companies wanting to list their Indian subsidiaries has been a more recent one, and is likely to continue. One of the things that have changed in India over the last 5-8 years is that the median size of companies going public has meaningfully gone up. These days, large institutional investors want companies with a larger scale to go public, and they’re not as keen on smaller assets.

So, that implies there is a particular scale beyond which, if you go public, you get all of the benefits in terms of high-quality research coverage, larger investors wanting to participate, and good free float. But below that scale, would you rather stay private longer. The scale criteria has certainly gone up over time.

The beauty and personal care sector is booming in India. What has led to a sharper focus on deals in this segment?

One is that conventional companies in this space now want to have a more meaningful foray into digital-first space, so a lot of D2C assets in beauty become pretty attractive targets. Also, there are many reasonably scaled-up assets on the digitally-native side, which was probably not the case even four years ago. Some of these brands have demonstrated pretty strong growth in the last 3-4 years, making them more attractive as assets for larger players.