Recession Slows M&A: Prosus-BillDesk Deal and Long-Term Effects

[ByHarsh Mittal]

The author is a student of Hidayatullah National Law University.



We see that recessionary fears have started impacting M&A deals and there has been a considerable slowdown in merger deals as a result of the same. There exists a huge gap between what private investors are willing to offer for different Merger deals now as compared to Pre- Recession period. The latest victim of this meltdown was the online payments gateway firm Bill Desk. On 31 August,2021 Prosus announced that an agreement has been reached between Bill Desk and Pay U, a subsidiary of Prosus to acquire Bill Desk for a staggering $4.7. However, Prosus terminated the contract one year later stating that certain conditions were not met. This sudden termination of the agreement was largely due to the huge ongoing correction in the global markets which has resulted into transactions being termed overpriced. There has been hesitation in the mind of investors before executing M&A deals after this recession. In this article, the author shall be analysing how recession has resulted in a slowdown in M&A deals. We would also try to understand whether this Recession would be having any long-term impact on the transactions or is a short-term hiccup with special reference to the Prosus and Bill desk deal.

Impact of Recession on Mergers and Acquisitions

While we do not have any Universal definition for Recession, we define it as “Negative Gross Domestic Product in two consecutive quarters”. Given that a significant portion of Indian IT revenue is derived from the US, worldwide recessions in general and recession in the US in particular, are a threat to India’s Merger deals in the current fiscal year. The majority of Fintech Startups operating in the US and other countries have seen their valuations decline by more than 50% in recent years.[1] Investors’ perspectives on value have even shifted as a result of the global market crash for freshly listed companies’ equities. Numerous M&A deals that were announced before the most recent market crisis are being rethought due to the disparity between what the public markets are ready to pay for the company and what private investors are paying. We see that the fear of recession is preventing people from executing M&A deals. Following the pattern of past Recessions, what one can predict is that there will be a huge downturn in mergers and acquisitions deals in this period.  But it’s clear that this recession differs from other ones. The 2008 Financial Crisis was primarily driven by debt-related excesses in the housing and internet infrastructure markets, whereas the current one is primarily driven by excess liquidity as a result of COVID-led fiscal and monetary stimulus that is fuelling inflation and encouraging speculation in financial assets . We do not need to worry about a complete collapse as it happened in previous cycles. Merger deals and the Economy does not have a tight connection due to multiple of factors existing in the market. As a consequence to which we won’t see a major impact on M&A activity even if economy has to go through long periods of Recession.

Pay U and  Bill Desk Deal

There have been numerous instances where the impact of the Recession is seen in Merger and Acquisition deals. We will try to analyse one such example where the acquisition was called off due to a steep fall in the valuation of the company. On 30th September when Prosus NV terminated the $4.7 billion agreement to purchase Bill Desk, every shareholder was in disbelief as no one could have dreamt this coming. M&A Agreement contains a set of conditions that   were required to be fulfilled before completion of the transaction such as regulatory approvals, business not suffering Material Adverse Effect and various Due Diligence Formalities. Prosus contended that Bill Desk was not able to satisfy some of these conditions which were precedent for execution of the contract. The deal which was announced more than a year ago had received the approval of the Competition Commission of India just days before the cancellation. Certain plausible reasons for the cancellation of the deal are-

Steep fall in Valuation

India markets are highly sensitive to the United States economy and they generally follow the trend of their system. Expecting a deal of this magnitude to be executed after such a huge contraction was very challenging. Though Bill Desk is one of rare profitable companies, the valuation of 4.7 Billion which is 19xof Bill desk revenue would have been a major hurdle in execution of this deal due to existing sentiments of investors for M&A deals.

Approval time taken by CCI

On 5th September, 2022, the wait was finally over for both the parties as the acquisition was approved by Competition Commission of India One of the reasons for the cancellation of the deal was the long period taken by CCI. Prosus was left frustrated due to the duration of time taken for the approval. Due to the time gap between the announcement and execution, we saw a dip in the valuation of Bill Desk which eventually led to the cooling-off of Pay U’s interest in executing this deal.

Failure of New Age Companies

To know the real reason behind the failure of such a deal, it is important to look at what is going on in the Indian Economy. Paytm’s big fall after its public listing is one event that has shaken the faith of global investors all around the world. Fintech Sector runs on very thin margins and is all about customer conversion but the Paytm debacle has led to a very conservative approach by investors.

Implications of this deal – An analysis

This deal was supposed to elevate the fintech sector to new heights. Prosus had already strengthened its position in the Indian payments industry through Pay-U  and the acquisition of Bill desk would have given Prosus access to a large customer base of small merchants in India. If we look at the implications of the cancellation of the deal, we see that Pay U would now have access to the financial as well as business information of Bill desk. Since these two are competing brands, Bill desk runs the risk of its reputation being affected. The leak of financials will be very detrimental to the interests of the company. Calling off of this deal has implications not just for the investors but also for the economy as a whole. In the time period taken for approval expected return on investments for the investors nosedived 25 percent which was very detrimental to their interest. If the valuation of firms would see such a huge contraction, there would be hesitation from the side of investors before striking any deal in the Indian market. This would be a major loss to the interest of the Economy as foreign investment is a major source of the influx of funds. It is very important that the perception of investors which is changing due to changing dynamics in the IT Market is controlled before it becomes irreparable.

Way Forward

As it could be comprehended from Pay -U Bill desk deal, businesses are postponing their expansion plans and delaying M&A deals until they have a better understanding of the direction the economy is moving in. The acquisition of Bill desk was also abandoned because it was deemed to be too expensive. Investors are taking a much more cautious attitude now. Companies have started taking short term steps which will help them in making price adjustments and cutting input costs during the Recession period. The businesses have very good fundamentals, and even the unemployment rate in the economy has substantially reduced due to a number of job openings.. In this period of downturn companies should focus on synergy valuation even more. Companies should be able to blend together the benchmarks provided by the industry and opportunities which this merger will bring for the company. When they will be able to correlate these factors, it will result in a much more profitable merger during the period of Recession. Companies have started looking for those deals in which the underlying fundamentals of the other company has not changed that drastically and even the fall in the valuation is not steep as the market suggests. Careful analysis is being conducted by the Companies so that the deal could be a win win situation for both the customers and parties to the transaction.

What’s Ahead in 2023

Between the first and second halves of the year, the 2022 mergers and acquisitions market displayed striking contrasts. The first five months saw a lot of deal activity, which was a continuation of the record-breaking climate in 2021. Deal activity did, however, noticeably slowed down in the second part of the year. The effects of the crisis, erratic capital markets, escalating interest rates, and macroeconomic uncertainty led many firms to prioritize internal growth over acquisitions. A weaker economy may push corporations to alter the kinds of acquisitions they pursue once they regain confidence in their M&A strategies. When companies evaluate their business models, deal structures such as spinoffs or divestitures, for example, may become more prevalent. Some agreements are still being finalised, particularly those involving investment-grade companies with easy access to capital or some private equity firms looking to invest. Private equity companies would be very important if the economy stabilises. For the following two years, there will be a substantial increase in Cross Border Mergers. Global supply networks are being strengthened by businesses around the world, and many will likely increase their foreign investment to do so.


Many industry supply networks that are now recuperating from the effects of the COVID-19 global pandemic may experience further disruptions in the event of a downturn in the economy. Particular attention should be paid to various Force Majeure clauses in these circumstances. Musk’s Twitter conflict is yet another example of buyers getting cold feet after signing the purchase agreement. Due to Twitter’s alleged violations of the merger agreement and the steep decline in market capitalization of technology businesses since the deal was finalized, Musk stated he was terminating the contract. Though Musk eventually closed the deal, it serves as an excellent illustration of how buyers have grown hesitant to finalise M&A deals during the current crisis. The impact on businesses may be much aggravated because the recession has not yet reached its height. Companies must make sure that proper due diligence is undertaken using numerous simulations of inflation, interest rate, growth, and employment and pay scenarios. 2023 can be a challenging year for M&A market players however this poses opportunities for those players who are strategic in their approach and able to navigate through this slowdown.



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