Hostile bids overseas by Indian cos unlikely

In India, Rothschild started operations in 1999. It ranked No. 1 in the mergers and acquisitions advisory business in India, both in 2005 and 2006, in Thomson Financial’s industry league tables.

It has helped the restructuring and sale of the Dabhol Power Co., GVK Group’s consortium bid for Mumbai airport privatization, Dr. Reddy’s Laboratories Ltd’s $576 million acquisition of Germany’s Betapharm, Cairn India Ltd’s $2 billion public float as well as Tata Steel Ltd’s Corus acquisition.

In an interview with Mint, Sanjay Bhandarkar, head of Rothschild in India, explains its business and the deal climate in India. Edited excerpts:

You have been very focused on M&A advisory in India, compared with private equity or debt advisory business. Will you increase the focus on other areas?

It is true that we have been focused on M&A deals in the past. Being a European bank, there is a natural advantage for us as cross-border M&A between India and Europe continues to be strong. However, we will increase private equity and debt advisory. We have grown from a team of seven to 16. This now gives us the human bandwidth to do more business.

Purely advisory: Sanjay Bhandarkar, head of Rothschild in India.

Unlike other large investment banks in India, you do not directly offer M&A funding for companies. Why is it?

Yes, our business model has been purely advisory. We do not provide M&A financing. The company has followed this policy for centuries and we have established ourselves well in the advisory business. In India, we are relatively new. It has been just seven years. Our ECM operations (through ABN Amro Rothschild) are bound to increase in India along with all other services that we offer internationally. It’s a vast market and we are a small team. We are picking business very carefully. There are so many opportunities out here.

You had topped the M&A league tables in past two years. Where will you stand in 2007?

We should be somewhere in the middle in 2007. League tables are not as important in the case of M&A as much as it is in the case of ECM, where it symbolizes selling capability. M&A advisory does not work in such a ‘one size fits all’ fashion. When one goes there and markets himself as an M&A banker, he does not claim experience to a standard model. On the other hand, it has more to do what value he can bring in a contest in terms of understanding the situation, knowledge of vendor, etc.

When will Indian companies resume the interest for large deals exhibited earlier this year? What are the hurdles?

Well, the stock market has just moved up, though the credit supply across the world remains tight. It is just a matter of time that we have another burst of deal activity. We have seen more of action in the mid-sized companies. There have been $400-600 million (Rs1,576-2,364 crore) deals. For the billion dollar deals, we still do not have many companies that can go ahead and do such deals.

Large deals may not be very sector specific. On the other hand, one can see many such deals in the resources space. The coal industry could see a significant number of deals in the future. It could be either companies or assets. There will be less sector-specific reason. The steel industry is one good example. While some companies have gone ahead with global deals, some others chose to grow domestically.

Is there greater availability of assets in the developed markets at this point?

The availability of assets is again based on the price you are willing to offer. Unlike in the case of Indian companies, mostly family-owned, in the West, owners will always consider selling a business if the price is good. Also, it is still sometime away that we see Indian companies go ahead and make hostile bids. Large deals done by Indian companies were all negotiated deals. Here the culture is different. It is unlikely that an Indian company might place a hostile bid in an alien territory.

With the global tightening of credit markets and booming domestic stock market, will there be an increase in stock-swap deals from Indian companies?

I agree with you, there will be more stock-swap involved in future deals from India. However, these may not be buyouts. It will be business consolidation. In the case of such deals, there will be significant dilution in the promoters stake in the company. Indian owners may not be very comfortable with this.

With private institutional ownership in large Indian companies going up, are there chances of an inbound hostile bid?

One keeps on hearing about such things as hostile bids on Indian companies. There is no smoke without fire. But these are just possibilities. There is no certainty about the political reactions if such a bid comes up. The separation of the families from the management of a business, as it happened in the west, is a process of natural evolution.

There is huge funds activity in the infrastructure space. How will this be absorbed?

In the future, deals in this sector will eventually come down even to the project level. With the sheer number of people setting up infrastructure funds in the country, deals will not just be in companies but also in special purpose vehicles (SPVs). It is a trend in US and Europe.

Rothschild is registered as a foreign institutional investor (FII) in India? Is the fund management part directly linked to your business?

No, it is not our business. It is another independent business of a Rothschild family member. It is a 200-year-old family spread over Europe but with diverse business interests like the Birla families in India.

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