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Domestic banks surge in M&A league table

Homegrown investment banks have taken over many global giants in M&A league table this year as domestic deals take dominance over cross border transactions.

Mergers and acquisitions in India have been long dominated by international banks who have consistently captured the top five positions in the annual league table. But for the first time this year two home grown investment banks have come in this prestigious ranking with ICICI Securities and Kotak Investment Bank respectively coming at 4th and 5th position, as per Bloomberg data.

They have also been closely followed by another domestic peer J M Financial at 6th position. This has put them ahead of  bulge bracket Goldman Sachs, Morgan Stanley, Standard Chartered, J P Morgan, HSBC and UBS. The top 3 positions, however, is still captured by international heavy weights: Citi, Ernst & Young and Bank of America Merrill Lynch.

“It captures the changes that have taken place since election results were announced. The change in the economic environment has boosted the business confidence of domestic acquirers,” says Sourav Mallik, senior executive director & head – M&A, Kotak Investment Banking. His bank advised on 16 transactions worth over $ 4.4 billion including group firm Kotak Mahindra Bank’s acquisition of ING Vysya Bank in $ 2.4 billion deal.

While global banks have an edge in cross border transactions, domestic players claim to have greater bonding with local companies.

“Indian clients are more comfortable with domestic banks in their understanding of local environment. Even the inbound deals have strong domestic leg and investors coming-in want to have better understanding of market, so domestic banks have an edge,” says Ajay Saraf, executive director, ICICI Securities which was an advisor to Ranbaxy for $ 4.1 billion acquisition by Sun Pharmaceutical.

Adviser Rank Market Share (%) Total Deal Value ($ million) Average Deal Value ($ million) Deal Count
Citi 1 16.9759 8401.27 1680.25 5
Ernst & Young 2 16.9178 8372.51 270.08 31
Bank of America Merrill Lynch 3 15.6454 7742.8 1290.47 6
ICICI 4 15.3781 7610.51 585.42 13
Kotak Mahindra Bank Ltd 5 8.9956 4451.87 296.79 15
JM Financial Ltd 6 8.7845 4347.4 434.74 10
Goldman Sachs & Co 7 8.3293 4122.09 1374.03 3
Evercore Partners Inc 7 8.3293 4122.09 4122.09 1
GCA Savvian Group Corp 7 8.3293 4122.09 1030.52 4
HSBC Bank PLC 10 6.4478 3190.98 3190.98 1
           
Source: Bloomberg / data as on 22 December      
Compiled by BS Research Bureau      

The year that saw over $ 87.5 billion transaction could not get any outbound deal of significance. And the inbound acquisitions largely included players like Diageo Plc and Vodafone PLc increasing their stake respectively in United Spirits and Vodafone India. Other inbound deals of significance were only in the e-commerce space where existing investors pumped in new money worth about $ 3 billion including Amazon acquiring $ 1.2 billion worth stake in fashion e-tailer Jabong. But e-commerce players did not involve rain makers in these transactions.

This left the M&A market largely for domestic consolidations which saw stressed asset changing hands from weaker hands to stronger hands. Indian power sector has seen M&A worth about $ 4 billion in the year with players such as Adani Power, JSW Energy and Tata Power acquiring assets from highly leveraged players such as Lanco Infratech and JP Power Ventures.

“We capitalised  on consolidation theme,” says Atul Mehra, joint head and co-ceo investment banking at J M Financial who advised Reliance Industries on acquisition of Network 18 Media & Investments besides T V 18 Broadcast. It did over 10 transactions worth $ 4.3 billion in the year. “The opportunity was there because of a fragile equity markets and the need of delevreraging of balance sheet. This facilitated consolidation amongst domestic players and for MNC to further consolidate its holding and business interest – these two helped us reach to this position,” he says.

But domestic banks success also lies in their flexibility to do large as well as small value deals. This helped them rank over many global banks that target only high value deals.

“Large banks have a fee structure with a minimum threshold which does not suit small size deals unless it is for a strategic reasons to support a client,” says Raj Balakrishnan, head of investment banking at Bank of America Merrill Lynch which advised on 6 M&A deals worth $ 7.7 billion in the year including Diageo’s $ 3.1 billion acquisition of additional stake in United Spirits.

However, Ernst & Young the global advisory firm that has an investment banking arm ranked second with doing as many as 31 transactions worth $ 8.3 billion. Citi however topped the league table with only 5 deals worth $ 8.4 billion showing its continued strength in doing high value deals.

“After an economic slowdown usually things first start picking up in secondary market then it comes to capital raising in primary market followed with domestic M&A and inbound deals and finally it comes to outbound acquisitions,” says Balakrishnan. “So we are hopeful that large size outbound deals will finally come.”

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