Mumbai: Last year, deal-making was all about big government rescues of failing financial firms. But this year, merger and acquisition (M&A) activity has gained momentum.Pfizer Inc. bought Wyeth Ltd, Orcale Corp. acquired Sun Microsystems Inc., Dell Inc. purchased Perot Systems Corp. and Kraft Foods Inc. is pursuing Cadbury Plc.
Blackstone Group Lp’s senior managing director and global head of the corporate and M&A advisory group, John Studzinski, talks about M&A activity expected by the end of this year and the next. Edited excerpts:
Deal dynamics: A file photo of Blackstone’s John Studzinski. Adam Berry / Bloomberg
I understand that you are in India very frequently, once in six-eight weeks, you tell me. Are you currently consulting with any large Indian corporate houses on big M&A deals? What are you talking to them about? What’s it looking like?
The Indians are at the table and they are involved in the sort of global discussion flows of capital and many of them are looking at projects right now. We do have some mandates in areas such as infrastructure; we also are working with a number of clients as they look abroad for certain types of investments.
How do you hope to get a foot in the door with the India M&A business?
Well, I have been coming to India for 25 years. I came to India when I was with Morgan Stanley, I came here a lot when I was at HSBC (Holdings Plc). I have a lot of time for (HSBC India head) Naina Kidwai, she’s a good friend and she has (a) fabulous network and is well respected as a banker here in India. But remember that Blackstone’s advisory practice is not about league tables, it’s not about being all things to all people. People hire us because they want grown-up advice by people that have had 20 or 30 years in the business... They are tired of being advised by armies of just bright young bankers. They want people who have experience. They also want people who really understand boards and stakeholders. I know a lot of the key people in India. We have been working with them on a number of projects over the last 10 years and they are actually part of the global network. They are as fluent in New York or London or in Hong Kong, as they are in here. We have to keep reminding everybody that Indian companies have been cosmopolitan for a long time.
But the fact that you don’t bring any financing on the table. Does that restrict your ability to get more clients on board? Secondly, at any point, does the private equity arm of Blackstone, or that function of Blackstone, merge in with this arm so if you are consulting a company on a deal that they potentially want to do...would you come in and want to buy stakes?
The fact that we don’t provide financing is a plus. People will see us as independent and they see us as not conflicted because we don’t have an incentive to sell a financial underwriting or a financial product. The private equity aspect of your question is even more interesting because Anglo-American cultures are quite wary—that if you are advising me, I don’t want you investing alongside me. But as soon as you fly across Europe, across the Middle East (West Asia), across (the) subcontinent through India and Asia, what you find is, ‘Okay, if you are investing with me, I’ll take your advice. If you are advising me, why don’t you put your money on the table?’ So there is much greater synergy. Many clients actually like the fact that Blackstone has an investor-oriented sort of culture. Many clients say, ‘Okay, what’s the return on this deal if we are looking at this project. What would your return criteria be, Blackstone, and we want that factored into your advice.’
What is your assessment of what the environment currently is for deal-making and do you expect India and China will be the centre of all of that activity over the course of the next four or five years, disproportionately? I know they are important economies, but disproportionately?
Well, the big activity in India, as you know, at the moment, over the last two or three years, domestically, has been energy, telco and financial services. Internationally, people have invested principally in metals, mining, in industrials... But as I look globally, where do we see big activity right now in terms of funds flows? Technology, healthcare and telecommunications.
Are the deal dynamics in emerging markets such as India very different?
Actually you know, in some respects, it’s much more fun. It’s a bit like going to a theatre. Everything, every meeting is a little different. People have less experience and people are more honest if they don’t have experience... In emerging markets, you have got many more stakeholders that are below the surface, below the radar screen. You’ve got a lot of nuances of government that people are not aware of. You have elements of corruption, which is a terrible word, but it’s a fact of life and you have to go into these meetings and these situations with your eyes open and you have to protect your clients, protect the clients’ shareholders.