As Indian companies continue their shopping spree abroad, foreign investment bankers find India an attractive destination. RSM EquiCo Capital Markets LLC, the investment banking arm of accounting and financial services giant H&R Block Inc., handled 50 deals in 2006 at a value of $1.8 billion (about Rs7,380 crore) and ranked 16 on a list of top US advisers. It had no Indian on its buyers’ list.
Hector J. Cuellar, president of the California-based investment bank, visited India last month to fill that gap. He is quick to point out that in 2006, the bulk of the merger and acquisition deals struck in India were outbound, 75% were private deals and many were under $100 million.
RSM EquiCo caters mainly to smaller and private deals. As Cuellar puts it, his firm “serves the underserved”.
In this interview, Cuellar explains India’s part in the mid-sized mergers and acquisitions game, and what role his company seeks to play. Excerpts:
Why are you here now?
Today, between 20% and 25% of our deals are cross-border, most of them in Europe. To be a truly global investment bank, you can’t ignore the fastest-growing, most populated area, which is Asia. We have in our inventory 200 different mandates—actual transactions of companies in North America that want to sell—and our average deal size is about $35 million. In the past, we would skim over some Asian buyers and focus on Europe. Not any more.
So what other countries are you targeting?
Now, we are saying, “Hi China, hi India, here are $8 billion worth of transactions.” We’re populating our buyer pool, so that we deliver more value to our customers. We did our first India transaction last month. We sold a company out of Canada to (Mumbai-based engineering company) Batliboi Ltd. There would be significant buyers in a few other countries, but Singapore, China and India are the key countries. At some point, we need to get to Australia, too.
Why the mid-sized market?
We are pushing on an open door. At the conference I held in Singapore, 50 people showed up and in Shanghai, 100 showed up. That’s a pretty strong response for a company they have never heard of.
What do you mean by “underserved”?
What are the key industries in India? Clearly, IT, pharma, some energy services (and) telecom. Those are obvious. I want (to reach) the next couple of layers because those are the guys who are not getting attention. They might be industrial machinery or niche players in health care.
How do the American mid-sized companies view the prospect of an Indian buyer?
The middle market is more globalized than people think. In IT, they (the Indian buyers) dominate. Even among the rednecks of the rednecks, an entrepreneur can be very smart. They say tell me what will happen to my employees, am I going to stick around and how is it going to work.
We have two companies in the pipeline—one in infrastructure and one in telecom. They both outsourced to China 20 years ago.
Do you have a partner in India?
RSM McGladrey India handles our other (accounting) operations. And (a year ago), we said, “Is there any way that you guys can start adding some resource people, because we are going to be coming down?” And, they did. So, today, RSM McGladrey India has got 30 people, or so, focused on valuation and investment banking. They are not bankers; their function is a support function. In a year or two maybe, we will have some bankers on the ground to focus on the indigenous market.