Here’s why every investment banking firm in the world is expanding its India operations, entering the country, or breaking up with old partners to go it alone: According to an executive at Credit Suisse, the investment bank expects the value of M&A deals related to India this calendar year to touch $50 billion. The corresponding figure 28.8 billion in calendar 2006. “In the current calendar year, mergers and acquisitions into and from India have already reached above $25 billion and we anticipate this will touch $50 billion this year,” said Paul Calello, member of the executive board of Credit Suisse, who is set to assume charge as CEO of the firm’s global investment banking division in May this year. Another investment bank, Morgan Stanley, too, has been forecasting that this year will see several big-ticket mergers and acquisitions in which either the acquirer or the target is an Indian company.
“Once one Indian firm is successful in an overseas acquisition, it attracts others and builds institutional confidence in the ability to pull off big deals. Firms like ours, too, put more resources to work and show more targets to Indian clients, and this obviously increases the likelihood of deals materializing,” said Calello. He anticipates growth of M&A activity in areas such as natural resources and materials, an area where several M&As in Asia have happened recently, and in transport and infrastructure.
It’s not just the value of transactions that’s attracting investment banks and bankers to India. Fees for deals that involve or acquirers out of India are rising to global levels from levels that were once much lower than even those prevalent in China. In fact, according to the buzz in Mumbai’s investment banking circles, the top tier of global investment banks have abstained from taking part in transactions that are low fee yielding and have reached an informal consensus among themselves not to underbid each other even on government transactions.
“As we see more cross-border transactions, there will be an equilibrium in fees in what buyers are paying investment banks and sellers. The significant value that advisors provide to such deals will be reflected in such transactions as well, even though we feel a different fee structure could continue to prevail for purely domestic transactions,” said Calello.
Credit Suisse forecasts India to be one of the most significant contributors to its profits in the Asia region in three years. The firm also relaunched its brokerage business in India earlier this week and has already seen many of its largest global clients redirect some of their Indian equity trades to the firm. Credit Suisse lost its broking licence in India in 2001 after it violated rules in trading shares of DSQ Biotech Ltd between 1999 and 2001. Late last year, the government decided not to impose any additional penalties.
The firm, which is among the leaders in leveraged finance also plans to work with Indian clients who have been engaged in many leveraged buy-outs to educate them about the benefits and risks inherent in such transactions. It will also leverage its balance sheet to provide financing to Indian companies seeking to acquire companies.