Indian companies are increasingly using mergers and acquisitions to accelerate growth, with 75% of firms maintaining stable credit ratings, according to a recent CRISIL report. While deal volumes have doubled since 2017, companies are managing debt well. However, investors should note that about one-third of acquisitions fall short of their business goals, often due to complex post-merger integration challenges and regulatory delays.
Indian companies are shifting their growth strategy by buying businesses instead of building them from scratch. According to a new report from CRISIL, this rise in mergers and acquisitions (M&A) is not hurting the credit health of these firms. Data shows that roughly 75% of companies involved in these deals have managed to keep their credit ratings stable or even improve them, showing that corporate India is balancing expansion with financial discipline.
Since fiscal year 2017, the volume of deals has more than doubled. Companies in sectors like technology, pharmaceuticals, and artificial intelligence are leading this trend, often using acquisitions to quickly gain access to specialized talent and intellectual property. Meanwhile, sectors like cement and metals are focusing on large-scale consolidation to improve their market position. The primary driver for this shift is speed; buying a competitor or a smaller, innovative player allows firms to enter new markets much faster than organic expansion.
Financial strength remains a key supporting factor. A simple way to measure a company’s debt comfort is the net debt-to-EBITDA ratio, which looks at how much debt a company has compared to its core operating profit. For rated companies in India, this ratio has significantly improved to approximately 1.3 times, down from 2.4 times in 2017. This lower debt level gives companies the financial space to take on new deals without putting their stability at risk. About 60% of these acquiring companies are successfully paying down the debt taken for these deals within their planned timelines.
However, the path to successful acquisitions is not without hurdles. A review of 100 major debt-funded transactions found that while two-thirds met their business objectives, about one-third did not. The report highlights that success often hinges on execution rather than just the deal itself. Integration challenges are the biggest issue, accounting for nearly half of the underperforming deals. When a company acquires another, merging operations, cultures, and systems can be difficult.
Regulatory hurdles and cross-border complexities also play a significant role in deal failures, contributing to about 20% of the unsuccessful cases each. For investors, this creates a clear message: the announcement of an acquisition is only the start. The real test is the company’s ability to integrate the new business, achieve the planned cost savings, and manage the added debt. Going forward, investors may want to monitor management commentary on post-acquisition progress, synergy realization, and debt repayment schedules, rather than just the initial deal excitement.