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Next leg of M&A activity to be from family-run businesses

Next leg of M&A activity to be from family-run businesses

Mumbai: Lazard India Pvt. Ltd, the Indian arm of UK-based Lazard Llc, has localized its strategy for India. It will not pitch for mandates that do not make business sense and will not chase the league tables, said K. Balakrishnan, chairman and managing director, Lazard India.

While the firm has been in India since 1984-85, it had to restructure the business in 2004 to facilitate growth.

“When I came in, my mandate was to re-establish the business from scratch in India. Thus, I was the first member of the new team; we then sought and hired other members of the team who had the drive and capability to meet the challenges and do things differently," Balakrishnan said.

The firm, which has a small team of 14-15 bankers, follows a cradle-to-grave policy-“where the investment bankers are involved from the client pitch to fee collection stage of a mandate", he said.

This has been a busy year with a robust deal pipeline. Balakrishnan and his team have successfully advised five clients on mergers and acquisitions (M&As) so far.

These include ICICI Venture’s 85% stake sale in biotech firm RFCL Ltd to US-based Avantor Performance Materials Holdings (advised Avantor); Essar Oil Ltd’s purchase of Royal Dutch Shell Plc’s Stanlow refinery (advised Shell UK); Marico Ltd’s divestment of its refined edible oil brand Sweekar to Cargill India Pvt. Ltd (advised Cargill); and the promoters’ stake sale in Andhra Pradesh Paper Mills Ltd to International Paper Co. (advised International Paper).

At the end of May, the investment bank advised the promoters of Sabero Organics Gujarat Ltd in the sale of 42.22% of outstanding shares to Coromandel International Ltd, a leading fertilizer and agrochemicals company. The deal was closed in just 16 days, Balakrishnan said.

“In 2004, we wouldn’t look at any sub-$500 million deals. However, (given) the strong strategic interest in India, the current need is to widen the canvas. Thus, we are looking at smaller deals as well now," said Balakrishnan, 51, who owns a 25% stake in the Indian arm.

With leading global investment banks setting up shop in India, domestic players fighting tooth and nail for mandates and others setting up teams to cater to a niche segment of clients, India has become an overbanked market. With the fall in deal volumes, not only has revenue shrunk for investment banks, some have to pay from their own pocket to be in the league tables.

“We do not cut fees. We are paid fairly well. What will I do with league tables?" Balakrishnan said.

Globally, Lazard earned around $2 billion (Rs 8.980 crore) of revenue in 2010. Balakrishnan refused to share India-specific revenue numbers but said the operation is profitable.

Since 2004, the investment bank has several deals to its credit. It advised Tata Telecommunications Ltd when Japan’s largest mobile operator NTT DoCoMo Inc. bought a stake in it. The firm also advised Telekom Malaysia Bhd on the sale of its stake in Spice Mobile Ltd, which ultimately went to Idea Cellular Ltd.

While having a successful M&A advisory practice in place, the firm is yet to build its capital markets advisory business.

“Ideally I would want to add the equity capital markets and asset management pieces of the business to complete the entire bouquet of the product offering in India," Balakrishnan said.

The firm has strong sector skills in sectors such as pharmaceuticals, cement, telecom, information technology and chemicals, and is expecting the next leg of M&A activity to come from family-run businesses.

“I think consolidation in the Indian market will come from family-run businesses, where either the second generation is not interested in the business or where the current promoter does not have the ability or capability to scale up the business to be globally competitive—potentially capital- and skill set-related issues," Balakrishnan said.


Deals India, published jointly by Mint, Dow Jones Newswires and The Wall Street Journal, is a one-stop destination for investment professionals following deal flow, deals news, private equity and venture capital activity in India.

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