Investment banks in hiring mode
Abhineet Kumar / Mumbai October 10, 2009, 0:56 IST
Demand zooms for expertise in equity, infrastructure & telecom.
Till a few months ago, hiring was a strict no-no for investment banks. On the contrary, they were scaling back staffing plans in India given the dearth of merger and acquisition activity and stagnant capital markets.
That is changing rapidly with a rising number of deals fuelled by strong growth in the markets and an improving economic environment.
As a result, the talent hunt has been resumed, especially for people with expertise in equity markets, infrastructure and telecom. For instance, Citi Global Markets recently hired Bhavna Thakur as head of transactions, capital markets, from Morgan Stanley. Merrill Lynch has selectively started hiring for mid-level positions and Goldman Sachs is recruiting at associate and senior associate levels.
Japan's financial powerhouse, Nomura, which bought 35 per cent in LIC Mutual Fund in July, already employs over 2,600 people in India. It surprised many by issuing half-page advertisements expressing its intent to recruit in large numbers. Many banks have moved to reallocate senior staff from other regions to India.
Apart from the global banks, domestic firms such as Edelweiss filled four positions at vice-president and senior vice-president levels. Yes Bank filled one vice-president position this month.
“The hiring has started very selectively,” confirmed Aditya Sanghi, co-founder and managing director investment banking at Yes Bank.
“Further recruitment may take place with M&A activity gaining momentum,” he added.
“Investment banks have started building their teams in expectation of the deal market picking up," says Ranu Vohra, managing director, Avendus Advisor, a home-grown investment bank.
Avendus has been hiring throughout the year for its new functions such as equity research, but it recently recruited a senior person in the equity markets side and is filling up a leadership-level position for its M&A advisory this month.
Saket Jain, managing partner at Vito India, a specialised head hunting firm for the industry, says investment banks are currently looking for mid- to senior-level executives especially for infrastructure, telecom and financial institution groups.
Indian companies raised about Rs 13,000 crore through initial public offers in the June-September period this year, including those from Adani Power, Oil India and NHPC.
Merchant bankers are expecting over Rs 50,000 crore to be raised in the second half of the current financial year. This has created a lot of demand for the equity capital market function for which Citi hired the transaction head.
The tempo of hiring is expected to pick up from January. Global banks follow the calendar year and top-level hiring for various vertical heads are expected to take off in the January-March period.
http://www.business-standard.com/india/news/investment-banks-in-hiring-mode/372817/
Saturday, October 10, 2009
Tuesday, October 6, 2009
It's the festive season for initial offers, too
It's the festive season for initial offers, too
Abhineet Kumar / Mumbai October 6, 2009, 0:16 IST
September saw 30 companies file prospectuses
The mad rush of 2006 may still be a distant memory, but India Inc is trying hard to make up for lost time as far as raising money from the capital market is concerned.
Last month saw 30 companies filing their draft red herring prospectuses (DRHPs) with the market regulator for initial public offers (IPOs), a sharp increase from six in August and three in July this year. The Securities and Exchange Board of India received eight filings in September last year, the month the Lehman Brothers meltdown brought the world economy to its knees.
Prime Database Managing Director Prithvi Haldea says this year, the September rush is even greater than earlier years because companies are returning to the primary market after a year’s gap.
Enam Securities alone has filed DRHPs on behalf of 10 companies in the last two weeks of September this year. Pankaj Jaju, senior vice-president at Enam Securities, said, “There was almost no activity till June. With the Sensex moving up sharply, there has been a clubbing of DRHPs by all those who have been waiting in the wings for a long time.”
Real estate and infrastructure companies lead the list with nine IPO applications.
These were from companies such as Emmar MGF Land (over Rs 3,500 crore), Sahara Prime City and Lodha Developers. Telecommunication infrastructure provider Reliance InfraTel has announced plans to raise Rs 5,000 crore from the primary markets.
“Overall IPO activity is good now. We can also expect a rush in December,” said Anil Ladha, head, capital markets, ICICI Securities.
Indian companies raised about Rs 13,000 crore through initial public offers in the June- to-September period of this year, including those from Adani Power, Oil India and NHPC. Merchant bankers are expecting over Rs 50,000 crore to be raised in the second half of the current financial year.
Power companies such as GMR Energy, Indiabulls Power and JSW Energy are expected to lead the charge along with public sector companies such as Bharat Heavy Electricals and NTPC.
A Prime Database study found that public sector companies benefit a great deal when they are listed on the stock markets. Four of them — Power Finance Corporation, Power Grid Corporation, Rural Electrification Corporation and NTPC — made valuation gains of up to four times after they were listed.
There are, however, some worry signals. For example, most of the IPOs so far received enthusiastic response, but the stocks’ performance has been lacklustre after listing.
Several of these are trading at a discount to the issue price, raising concerns over whether the issues were priced right.
The encouraging response to the Oil India listing has, however, removed some of those uncertainties.
http://www.business-standard.com/india/news/it/sfestive-season-for-initial-offers-too/372327/
Abhineet Kumar / Mumbai October 6, 2009, 0:16 IST
September saw 30 companies file prospectuses
The mad rush of 2006 may still be a distant memory, but India Inc is trying hard to make up for lost time as far as raising money from the capital market is concerned.
Last month saw 30 companies filing their draft red herring prospectuses (DRHPs) with the market regulator for initial public offers (IPOs), a sharp increase from six in August and three in July this year. The Securities and Exchange Board of India received eight filings in September last year, the month the Lehman Brothers meltdown brought the world economy to its knees.
Prime Database Managing Director Prithvi Haldea says this year, the September rush is even greater than earlier years because companies are returning to the primary market after a year’s gap.
Enam Securities alone has filed DRHPs on behalf of 10 companies in the last two weeks of September this year. Pankaj Jaju, senior vice-president at Enam Securities, said, “There was almost no activity till June. With the Sensex moving up sharply, there has been a clubbing of DRHPs by all those who have been waiting in the wings for a long time.”
Real estate and infrastructure companies lead the list with nine IPO applications.
These were from companies such as Emmar MGF Land (over Rs 3,500 crore), Sahara Prime City and Lodha Developers. Telecommunication infrastructure provider Reliance InfraTel has announced plans to raise Rs 5,000 crore from the primary markets.
“Overall IPO activity is good now. We can also expect a rush in December,” said Anil Ladha, head, capital markets, ICICI Securities.
Indian companies raised about Rs 13,000 crore through initial public offers in the June- to-September period of this year, including those from Adani Power, Oil India and NHPC. Merchant bankers are expecting over Rs 50,000 crore to be raised in the second half of the current financial year.
Power companies such as GMR Energy, Indiabulls Power and JSW Energy are expected to lead the charge along with public sector companies such as Bharat Heavy Electricals and NTPC.
A Prime Database study found that public sector companies benefit a great deal when they are listed on the stock markets. Four of them — Power Finance Corporation, Power Grid Corporation, Rural Electrification Corporation and NTPC — made valuation gains of up to four times after they were listed.
There are, however, some worry signals. For example, most of the IPOs so far received enthusiastic response, but the stocks’ performance has been lacklustre after listing.
Several of these are trading at a discount to the issue price, raising concerns over whether the issues were priced right.
The encouraging response to the Oil India listing has, however, removed some of those uncertainties.
http://www.business-standard.com/india/news/it/sfestive-season-for-initial-offers-too/372327/
Monday, October 5, 2009
UltraTech's plan for FPO
UltraTech plans public offer to fund expansion
Abhineet Kumar & Chandan Kishore Kant / Mumbai October 4, 2009, 0:51 IST
UltraTech is planning a follow-on public offer to fund the expansion of its cement business. The fund-raising exercise is likely once the restructuring of the business, announced today, is over.
The company has an investment plan of Rs 15,000 crore over the next five years to add about 25 million tonnes of capacity.
“The idea of the restructuring is to create a platform which will help in raising funds through a follow on public offer,” said D Muthukumaran, head (group corporate finance), AV Birla Group. “Grasim can bring down its holding to 51 per cent in the follow-on public offer. But it will take time.”
The cement business of the group is currently valued at a discount of 10 to 15 per cent to its peers such as ACC and Ambuja, which are owned by Holcim of Switzerland, because of the risks related to Grasim’s other businesses such as viscose staple fibre.
“Once the cement business comes under one entity, we will bridge the gap in valuation,” said Raj Balakrishnan, MD (M&A), DSP Merrill Lynch.
http://www.business-standard.com/india/news/ultratech-plans-public-offer-to-fund-expansion/372135/
Abhineet Kumar & Chandan Kishore Kant / Mumbai October 4, 2009, 0:51 IST
UltraTech is planning a follow-on public offer to fund the expansion of its cement business. The fund-raising exercise is likely once the restructuring of the business, announced today, is over.
The company has an investment plan of Rs 15,000 crore over the next five years to add about 25 million tonnes of capacity.
“The idea of the restructuring is to create a platform which will help in raising funds through a follow on public offer,” said D Muthukumaran, head (group corporate finance), AV Birla Group. “Grasim can bring down its holding to 51 per cent in the follow-on public offer. But it will take time.”
The cement business of the group is currently valued at a discount of 10 to 15 per cent to its peers such as ACC and Ambuja, which are owned by Holcim of Switzerland, because of the risks related to Grasim’s other businesses such as viscose staple fibre.
“Once the cement business comes under one entity, we will bridge the gap in valuation,” said Raj Balakrishnan, MD (M&A), DSP Merrill Lynch.
http://www.business-standard.com/india/news/ultratech-plans-public-offer-to-fund-expansion/372135/
Saturday, September 26, 2009
FCCBs regain currency; 4 firms raise $702 mn in four days
FCCBs regain currency; 4 firms raise $702 mn in four days
Abhineet Kumar & Deepak Korgaonkar / Mumbai September 26, 2009, 0:38 IST
After a year’s lull, foreign currency convertible bonds (FCCBs) are regaining currency. In the past four days, four companies have announced plans to raise $702 million (around Rs 3,370 crore) through FCCBs.
If Amtek Auto’s $65 million FCCB issue on September 11 is taken into account, the amount for September would be much higher. Before Amtek Auto, the last FCCB issue took place in August 2008 when Temptation Foods raised $200 million. But the global credit crisis and the liquidity crunch spoilt the party.
FCCB is a hybrid instrument that enables a buyer to convert bonds into equity before maturity at a pre-determined price. With share prices crashing, Indian companies were forced to buy back the bonds even if some of them had to raise fresh funds or dip into reserves. In all, 17 Indian companies bought back bonds worth $472 million using the special window opened by the Reserve Bank of India in December last year.
According to CLSA estimates, around 185 companies had issued FCCBs worth $20 billion (over Rs 95,000 crore) between 2004-05 and 2007-08. Of this, around $15 billion (around 72,000 crore) was outstanding, while the balance has been converted into equity. Most of the FCCBs are due for maturity over the next three years.
There were fears that the fall in equity markets would make the FCCB-issuing companies repay the debt. But with abundant liquidity in the global financial system and share prices rising in the domestic market, Indian issuers are back in the market.
“Investors expect the Indian stock markets to move up from current levels. So, they are looking at the incentive to convert the bonds into equity as prices rise,” said an executive at Welspun Gujarat. The company placed its $130 million issue with European and Asian investors.
Over the last three months, Indian companies have raised around $5 billion (Rs 24,000 crore) through external commercial borrowings, but most of these have been credit lines from parents, export credit agencies or Indian bank branches overseas. By offering conversion into equity as a sweetener, Indian companies are now trying to get overseas investors to shed their reluctance following last year's credit crisis.
Although investment bankers expect FCCB activity to pick up in the coming months, they warned companies to be careful. “Issuers of such bonds have to learn to manage liabilities; they need to provide for such bonds for risk management purpose and consider the outstanding bonds for calculating debt-equity ratio,” said Ravi Kapoor, managing director, capital markets for Citigroup Global Markets India.
The FCCB markets have, however, changed in terms of buyers and the coupon and premium available. Hedge funds, which were the largest subscribers earlier, have limited their participation. The largest participants are outright convert buyers who predominantly trade in FCCBs.
“Credit spreads have fallen dramatically in the last three to four months which is helping companies place FCCBs at much lower coupons,” said Vedika Bhandarkar, managing director, at J P Morgan India, the investment bank that was the sole book runner for the transaction of Welspun Gujarat.
Some FCCBs by overseas companies were placed at a coupon of 7 to 8 per cent early this year. Now the companies are able to place FCCBs at a coupon of 4 to 4.5 per cent. “The premium has also been rationalised and the days of 50 per cent premium are over,” she added. The bank was able to place the issue of Welspun Gujarat at premium of 20 per cent.
CURRENT ACCOUNT Name Date* Amt ($ mn)
Amtek Auto 11-Sep 65
Guj NRE Coke 22-Sep 60
Sujana Towers 22-Sep 12
Sesa Goa 24-Sep 500
Welspun Gujarat 25-Sep 130
*Date of announcements
http://www.business-standard.com/india/news/fccbs-regain-currency-4-firms-raise-702-mn-in-four-days/371331/
Abhineet Kumar & Deepak Korgaonkar / Mumbai September 26, 2009, 0:38 IST
After a year’s lull, foreign currency convertible bonds (FCCBs) are regaining currency. In the past four days, four companies have announced plans to raise $702 million (around Rs 3,370 crore) through FCCBs.
If Amtek Auto’s $65 million FCCB issue on September 11 is taken into account, the amount for September would be much higher. Before Amtek Auto, the last FCCB issue took place in August 2008 when Temptation Foods raised $200 million. But the global credit crisis and the liquidity crunch spoilt the party.
FCCB is a hybrid instrument that enables a buyer to convert bonds into equity before maturity at a pre-determined price. With share prices crashing, Indian companies were forced to buy back the bonds even if some of them had to raise fresh funds or dip into reserves. In all, 17 Indian companies bought back bonds worth $472 million using the special window opened by the Reserve Bank of India in December last year.
According to CLSA estimates, around 185 companies had issued FCCBs worth $20 billion (over Rs 95,000 crore) between 2004-05 and 2007-08. Of this, around $15 billion (around 72,000 crore) was outstanding, while the balance has been converted into equity. Most of the FCCBs are due for maturity over the next three years.
There were fears that the fall in equity markets would make the FCCB-issuing companies repay the debt. But with abundant liquidity in the global financial system and share prices rising in the domestic market, Indian issuers are back in the market.
“Investors expect the Indian stock markets to move up from current levels. So, they are looking at the incentive to convert the bonds into equity as prices rise,” said an executive at Welspun Gujarat. The company placed its $130 million issue with European and Asian investors.
Over the last three months, Indian companies have raised around $5 billion (Rs 24,000 crore) through external commercial borrowings, but most of these have been credit lines from parents, export credit agencies or Indian bank branches overseas. By offering conversion into equity as a sweetener, Indian companies are now trying to get overseas investors to shed their reluctance following last year's credit crisis.
Although investment bankers expect FCCB activity to pick up in the coming months, they warned companies to be careful. “Issuers of such bonds have to learn to manage liabilities; they need to provide for such bonds for risk management purpose and consider the outstanding bonds for calculating debt-equity ratio,” said Ravi Kapoor, managing director, capital markets for Citigroup Global Markets India.
The FCCB markets have, however, changed in terms of buyers and the coupon and premium available. Hedge funds, which were the largest subscribers earlier, have limited their participation. The largest participants are outright convert buyers who predominantly trade in FCCBs.
“Credit spreads have fallen dramatically in the last three to four months which is helping companies place FCCBs at much lower coupons,” said Vedika Bhandarkar, managing director, at J P Morgan India, the investment bank that was the sole book runner for the transaction of Welspun Gujarat.
Some FCCBs by overseas companies were placed at a coupon of 7 to 8 per cent early this year. Now the companies are able to place FCCBs at a coupon of 4 to 4.5 per cent. “The premium has also been rationalised and the days of 50 per cent premium are over,” she added. The bank was able to place the issue of Welspun Gujarat at premium of 20 per cent.
CURRENT ACCOUNT Name Date* Amt ($ mn)
Amtek Auto 11-Sep 65
Guj NRE Coke 22-Sep 60
Sujana Towers 22-Sep 12
Sesa Goa 24-Sep 500
Welspun Gujarat 25-Sep 130
*Date of announcements
http://www.business-standard.com/india/news/fccbs-regain-currency-4-firms-raise-702-mn-in-four-days/371331/
M&M may buy Kirloskar's stake in Swaraj Engines
M&M may buy Kirloskar's stake in Swaraj Engines
Abhineet Kumar / Mumbai September 25, 2009, 0:51 IST
The company plans to expand its diesel engine business.
Mahindra & Mahindra (M&M), India’s largest tractor maker, is planning to consolidate its stake in Swaraj Engines, as part of a plan to expand the disel engine business. M&M acquired a 33.2 per cent stake in Swaraj Engines and a 14 per cent stake in Swaraj Mazda through its acquisition of Punjab Tractors in 2007.
Swaraj Engines, 23 years old, provides diesel engines for Swaraj Tractors. The company was formed in technical collaboration with Kirloskar Oil Engines (KOE), which currently holds a 17.39 per cent stake in the company. M&M is in talks with KOE to buy out this stake.
“M&M has a bigger plan for the engine business and this acquisition would help the group leverage Swaraj Engines for that,” said an investment banker familiar with the development. “M&M has already had talks with Kirloskar Oil and the deal is most likely to happen soon.”
“As a policy we do not comment on market speculation,” said a M&M spokesperson. A mail sent to KOE did not get any response.
On Thursday’s stock price of Rs 310 a share, Swaraj Engines’ market capitalisation is Rs 385 crore and KOE’s stake in the company is valued at Rs 67 crore at this price. But an acquisition of the 17.39 per cent stake by M&M would trigger an open offer. Sebi’s guidelines makes it mandatory to give an open offer to buy an additional 20 per cent stake in case of acquisition of any 15 per cent stake in a company. At the current market price, a 37.39 per cent stake is valued at Rs 144 crore.
“The sale of stake by KOE would help it focus on its own business,” said another banker familiar with the talks.
M&M early this year sold its 14 per cent stake in light commercial vehicle maker Swaraj Mazda to Japanese co-promoter Sumitomo for Rs 40 crore. With this acquisition, Sumitomo’s stake increased to 53.5 per cent from 39.5 per cent earlier. The company sold the stake as it has a plan to develop commercial vehicles in a joint venture with US truck major International Truck & Engine Corporation.
http://www.business-standard.com/india/news/mm-may-buy-kirloskar/s-stake-in-swaraj-engines/371223/
Abhineet Kumar / Mumbai September 25, 2009, 0:51 IST
The company plans to expand its diesel engine business.
Mahindra & Mahindra (M&M), India’s largest tractor maker, is planning to consolidate its stake in Swaraj Engines, as part of a plan to expand the disel engine business. M&M acquired a 33.2 per cent stake in Swaraj Engines and a 14 per cent stake in Swaraj Mazda through its acquisition of Punjab Tractors in 2007.
Swaraj Engines, 23 years old, provides diesel engines for Swaraj Tractors. The company was formed in technical collaboration with Kirloskar Oil Engines (KOE), which currently holds a 17.39 per cent stake in the company. M&M is in talks with KOE to buy out this stake.
“M&M has a bigger plan for the engine business and this acquisition would help the group leverage Swaraj Engines for that,” said an investment banker familiar with the development. “M&M has already had talks with Kirloskar Oil and the deal is most likely to happen soon.”
“As a policy we do not comment on market speculation,” said a M&M spokesperson. A mail sent to KOE did not get any response.
On Thursday’s stock price of Rs 310 a share, Swaraj Engines’ market capitalisation is Rs 385 crore and KOE’s stake in the company is valued at Rs 67 crore at this price. But an acquisition of the 17.39 per cent stake by M&M would trigger an open offer. Sebi’s guidelines makes it mandatory to give an open offer to buy an additional 20 per cent stake in case of acquisition of any 15 per cent stake in a company. At the current market price, a 37.39 per cent stake is valued at Rs 144 crore.
“The sale of stake by KOE would help it focus on its own business,” said another banker familiar with the talks.
M&M early this year sold its 14 per cent stake in light commercial vehicle maker Swaraj Mazda to Japanese co-promoter Sumitomo for Rs 40 crore. With this acquisition, Sumitomo’s stake increased to 53.5 per cent from 39.5 per cent earlier. The company sold the stake as it has a plan to develop commercial vehicles in a joint venture with US truck major International Truck & Engine Corporation.
http://www.business-standard.com/india/news/mm-may-buy-kirloskar/s-stake-in-swaraj-engines/371223/
Thursday, September 17, 2009
India Inc settles for smaller M&A deals
India Inc settles for smaller M&A deals
Abhineet Kumar / Mumbai September 17, 2009, 0:14 IST
ICICI Bank’s Global Head (Investment Banking) Kalpesh Kikani says the time for multi-billion dollar deals is over. “India Inc’s appetite for large deals has gone down. In any case, financing such deals would be tough,” he says.
Kikani should know; his bank achieved the highest $434 million value of deals in the mid-size segment in the first half of 2009.
M&As are back on the radar for Indian companies, but with two vital changes. First, the average size of the deals are much smaller compared to the earlier years; and second, overseas acquisitions have taken a backseat.
In July and August this year, for example, Indian companies were involved in 34 domestic deals worth $543 million, with an average size of just $16 million. Outbound deals have shrunk to $90 million against $4.9 billion in the corresponding period of the previous year, according to data provided by Grant Thornton.
Consider the Tata Group, which set a scorching pace on acquisitions in 2007 and 2008 — the $12.2 billion Corus deal happened in 2007 and the $2.3 billion Jaguar Land Rover deal in 2008. In 2009, the group’s only acquisition is that of Sea Rock hotel in Mumbai by its group company, Indian Hotels, for Rs 680 crore ($142 million).
Experts see many reasons that deal sizes and overseas acquisitions have fallen drastically. The big boost to overseas acquisitions by Indian companies was access to easy credit from banks before the credit crisis.
“We are coming from an era of excesses when leveraging norms went for a six,” says Saurabh Agrawal, managing director and head of investment bank at DSP Merrill Lynch. Companies leveraged their balance sheet seven to eight times of the operating profit as there was excess liquidity available in the system at that point of time, explained Agrawal.
Now with banks getting cautious, leveraging levels have come down. This has led companies to using their internal accruals. So large-tickets deals such as the proposed $ 23 billion Bharti Airtel and MTN deal can only be an exception now.
“Risk management has become more important now,” says B R Jaju, who as chief financial officer was involved in many acquisitions by Crompton Greaves in the last couple of years. One of those included French company Sonomatra in 2008. He moved out of the company this month to join Welspun Gujarat as director and chief financial officer. “We can’t expect the earlier aggression for large-size deals at least for the next one year,” he says.
Experts say most of the acquisitions by Indian companies in the past were heavily leveraged and now a majority of these predators are struggling to service the loans for acquisitions. The big Indian companies now realise that it is not easy to integrate large facilities bought from outside owing to serious cultural and regulatory issues in moving production to India.
Instead, domestic companies are looking at lower-risk risk small acquisitions like the recent deals of Lupin and brand buy-outs to boost business.
Sujay Shetty, associate director of PricewaterhouseCoopers, says “Now, large loans for acquisitions have dried up for Indian companies. Thankfully, wisdom prevails in most boardrooms than simply jumping into acquisitions without proper homework.”
http://www.business-standard.com/india/news/india-inc-settles-for-smaller-ma-deals/370347/
Abhineet Kumar / Mumbai September 17, 2009, 0:14 IST
ICICI Bank’s Global Head (Investment Banking) Kalpesh Kikani says the time for multi-billion dollar deals is over. “India Inc’s appetite for large deals has gone down. In any case, financing such deals would be tough,” he says.
Kikani should know; his bank achieved the highest $434 million value of deals in the mid-size segment in the first half of 2009.
M&As are back on the radar for Indian companies, but with two vital changes. First, the average size of the deals are much smaller compared to the earlier years; and second, overseas acquisitions have taken a backseat.
In July and August this year, for example, Indian companies were involved in 34 domestic deals worth $543 million, with an average size of just $16 million. Outbound deals have shrunk to $90 million against $4.9 billion in the corresponding period of the previous year, according to data provided by Grant Thornton.
Consider the Tata Group, which set a scorching pace on acquisitions in 2007 and 2008 — the $12.2 billion Corus deal happened in 2007 and the $2.3 billion Jaguar Land Rover deal in 2008. In 2009, the group’s only acquisition is that of Sea Rock hotel in Mumbai by its group company, Indian Hotels, for Rs 680 crore ($142 million).
Experts see many reasons that deal sizes and overseas acquisitions have fallen drastically. The big boost to overseas acquisitions by Indian companies was access to easy credit from banks before the credit crisis.
“We are coming from an era of excesses when leveraging norms went for a six,” says Saurabh Agrawal, managing director and head of investment bank at DSP Merrill Lynch. Companies leveraged their balance sheet seven to eight times of the operating profit as there was excess liquidity available in the system at that point of time, explained Agrawal.
Now with banks getting cautious, leveraging levels have come down. This has led companies to using their internal accruals. So large-tickets deals such as the proposed $ 23 billion Bharti Airtel and MTN deal can only be an exception now.
“Risk management has become more important now,” says B R Jaju, who as chief financial officer was involved in many acquisitions by Crompton Greaves in the last couple of years. One of those included French company Sonomatra in 2008. He moved out of the company this month to join Welspun Gujarat as director and chief financial officer. “We can’t expect the earlier aggression for large-size deals at least for the next one year,” he says.
Experts say most of the acquisitions by Indian companies in the past were heavily leveraged and now a majority of these predators are struggling to service the loans for acquisitions. The big Indian companies now realise that it is not easy to integrate large facilities bought from outside owing to serious cultural and regulatory issues in moving production to India.
Instead, domestic companies are looking at lower-risk risk small acquisitions like the recent deals of Lupin and brand buy-outs to boost business.
Sujay Shetty, associate director of PricewaterhouseCoopers, says “Now, large loans for acquisitions have dried up for Indian companies. Thankfully, wisdom prevails in most boardrooms than simply jumping into acquisitions without proper homework.”
http://www.business-standard.com/india/news/india-inc-settles-for-smaller-ma-deals/370347/
Wednesday, September 16, 2009
'Appetite is coming back for M&A deals'
'Appetite is coming back for M&A deals'
Q&A: Saurabh Agrawal, Head of Investment Banking, DSP Merrill Lynch
Abhineet Kumar & Sidhartha / Mumbai September 16, 2009, 0:19 IST
With the economic situation improving, merger and acquisitions (M&As) are back on the radar as companies look to gain size. Though companies are still cautious, given the experience over the last few months, DSP Merrill Lynch Managing Director and Head of Investment Banking Saurabh Agrawal tells Abhineet Kumar and Sidhartha the appetite for M&As will improve in the coming days. Excerpts:
Many Indian companies, which had acquired firms overseas in the last three-four years, are going through a rough phase. What does this mean for overseas acquisitions?
The acquisitions made during 2005 to 2008 would have made Indian companies wiser in their segments and helped them to understand the dynamics and nuances of M&As. Most of these companies are going through a restructuring phase. They have been focusing on reducing leverage either by issuing additional equity or through cutting cost. Once the restructuring gets over, we will see a strong foundation for the next round of growth.
What will drive the outbound deals now?
We expect more manufacturing-driven deals for companies to scale up. In telecom, the scope is very limited. In the forging space, when the situation settles down globally, we will see the appetite coming back.
The last round of overseas acquisitions came on the back of availability of cheap finances. With the cost equation changing, will there be an impact on the M&A appetite?Basically, we are coming from an era of excesses, which took place way back in 2006 and 2007 when leveraging norms went through the roof. In some cases, leveraging was equivalent to seven-eight times of Ebitda (operating profit). There was an excess of liquidity in the system. There were clubbing of a lot of things resulting in a crisis in 2008. But right now, the appetite is coming back for good deals. While people are still cautious, money is available for such deals. People are more focused on the kind of assets a company is buying.
On the domestic front, which sectors are ripe for consolidation and where are enquiries coming from?
There is interest in pharmaceuticals, IT and media. My guess is that these sectors will interest foreign players. In case of media and telecom, there are so many players that consolidation has to take place.
Did private equity (PE) firms, which were complaining of high valuations last year, missed out when the valuation hit a low?
It takes time for PE deals to be come. What we saw was a very good rebound that took place in the capital markets. If the market had not come back, it would have been a PE-driven market. Private equity is always competing with the capital markets as a source of capital.
Recent experiences show that companies which have tapped the market through initial public offers have not performed well on listing. Should we expect that pricing will be more sober in the coming days?
The days of 25 to 30 per cent returns on listing are over. Now issues get priced optimally and it is primarily led by institutions. So, today the roadshow has to discover the demand and what should be the pricing, and then there is book building. Pretty much the system has moved up to optimal pricing.
But the response in the retail segment was not really enthusiastic?
The retail segment is going to be under pressure. Fund raising in the primary market is being driven more and more through institutions. When institutions are investing, they are doing it for the long term.
Has the Merrill Lynch India’s strategy changed following its acquisition by Bank of America (BofA) last year and what is the status on restructuring of its operations?
We were a pure investment bank prior to the merger. Now with BofA taking over, we are more of an end-to-end financial powerhouse. We have many more products and a large balance sheet. As Merrill Lynch India, we always had the ambition of getting a banking licence and now we have that. The integration is pretty much done. Just a few more formalities have to be completed.
http://www.business-standard.com/india/news/appetite-is-coming-back-for-ma-deals/370189/
Q&A: Saurabh Agrawal, Head of Investment Banking, DSP Merrill Lynch
Abhineet Kumar & Sidhartha / Mumbai September 16, 2009, 0:19 IST
With the economic situation improving, merger and acquisitions (M&As) are back on the radar as companies look to gain size. Though companies are still cautious, given the experience over the last few months, DSP Merrill Lynch Managing Director and Head of Investment Banking Saurabh Agrawal tells Abhineet Kumar and Sidhartha the appetite for M&As will improve in the coming days. Excerpts:
Many Indian companies, which had acquired firms overseas in the last three-four years, are going through a rough phase. What does this mean for overseas acquisitions?
The acquisitions made during 2005 to 2008 would have made Indian companies wiser in their segments and helped them to understand the dynamics and nuances of M&As. Most of these companies are going through a restructuring phase. They have been focusing on reducing leverage either by issuing additional equity or through cutting cost. Once the restructuring gets over, we will see a strong foundation for the next round of growth.
What will drive the outbound deals now?
We expect more manufacturing-driven deals for companies to scale up. In telecom, the scope is very limited. In the forging space, when the situation settles down globally, we will see the appetite coming back.
The last round of overseas acquisitions came on the back of availability of cheap finances. With the cost equation changing, will there be an impact on the M&A appetite?Basically, we are coming from an era of excesses, which took place way back in 2006 and 2007 when leveraging norms went through the roof. In some cases, leveraging was equivalent to seven-eight times of Ebitda (operating profit). There was an excess of liquidity in the system. There were clubbing of a lot of things resulting in a crisis in 2008. But right now, the appetite is coming back for good deals. While people are still cautious, money is available for such deals. People are more focused on the kind of assets a company is buying.
On the domestic front, which sectors are ripe for consolidation and where are enquiries coming from?
There is interest in pharmaceuticals, IT and media. My guess is that these sectors will interest foreign players. In case of media and telecom, there are so many players that consolidation has to take place.
Did private equity (PE) firms, which were complaining of high valuations last year, missed out when the valuation hit a low?
It takes time for PE deals to be come. What we saw was a very good rebound that took place in the capital markets. If the market had not come back, it would have been a PE-driven market. Private equity is always competing with the capital markets as a source of capital.
Recent experiences show that companies which have tapped the market through initial public offers have not performed well on listing. Should we expect that pricing will be more sober in the coming days?
The days of 25 to 30 per cent returns on listing are over. Now issues get priced optimally and it is primarily led by institutions. So, today the roadshow has to discover the demand and what should be the pricing, and then there is book building. Pretty much the system has moved up to optimal pricing.
But the response in the retail segment was not really enthusiastic?
The retail segment is going to be under pressure. Fund raising in the primary market is being driven more and more through institutions. When institutions are investing, they are doing it for the long term.
Has the Merrill Lynch India’s strategy changed following its acquisition by Bank of America (BofA) last year and what is the status on restructuring of its operations?
We were a pure investment bank prior to the merger. Now with BofA taking over, we are more of an end-to-end financial powerhouse. We have many more products and a large balance sheet. As Merrill Lynch India, we always had the ambition of getting a banking licence and now we have that. The integration is pretty much done. Just a few more formalities have to be completed.
http://www.business-standard.com/india/news/appetite-is-coming-back-for-ma-deals/370189/
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