JM Financial banks on trust, idea and solutions to close Birla-Biyani deal
The recent silver streaks in the wavy, thick black mop belie his boyish features, but it lends an air of sobriety and gravitas. If Vishal Kampani is stepping into the big shoes of his father— the intrepid and sagacious investment banking warhorse Nimesh— then a bit of grey hair surely comes handy while bringing two Indian business promoters or entrepreneurs to a discussion table.
It’s tough to say if that made Biyani call on him last December to strategise on different business consolidation options and deleveraging the Future Group balance sheet, but four months, several brainstorming and a savvy structuring later, Vishal Kampani has managed to stitch together the most fashionable deal in the marquee Indian retail landscape.
So last week when Kumar Mangalam Birla inked the agreement to buy Biyani’s Pantaloons Retail format, it also marked the return of Vishal Kampani in the adrenaline-pumped, testosterone-driven deal street after a hiatus of five years.
“The Pantaloons deal proves that I can still do M&A even after a gap of a few years. My competition used to say I don’t have investment banking focus since I was managing the fixed income business,” quips Kampani while sipping green tea in his board room, as we got down to decode his life and deals. “M&A would suffer, they said. Has it?” Kampani quickly asks to finish the sentence in a flourish.
To be fair, 36-year old Kampani Junior was always around. But since 2007, Vishal had to reorient himself after JM Financial had parted ways with its bulge bracket Wall Street JV partner Morgan Stanley. Working on his father’s advice, he took some time off the investment banking piece and was anointed head of the firm’s equity, real estate fund and fixed income business, leaving the rest to “the professionals to run.”
In any case, just like his father before, Vishal too has been delivering deals for a decade with the same finesse and gusto that had made them and their 39- year old family firm so endearing to our business royalty. The new responsibility therefore gave him a new entrepreneurial break.
But with Rs 200 crore revenue and an Rs 3,000 crore loan book in five years, those businesses have now charted its own steady growth trajectory. Fixed Income alone has a 15-20 per cent CAGR roadmap. So this gave Vishal the opportunity to take re-control of the investment bank last October.
And with a first headline deal in his bag, Vishal is again bootstrapping to be a rainmaker for promoters and CEOs when they go shopping.
“During a principal to principal negotiation, a firm like JM is still relevant. Foreign banks have greater global connectivity, scale and larger balance sheets but in situations like these, you need that trust and human continuity. Nimesh Kampani has been a legend who mastered this. But after this deal, Vishal has created his own niche. He’s moved out of his dad’s shadow,” feels B.Anand, Director Finance, Future Group. Anand – as the former CFO of Vedanta -- has seen him evolve up, close and personal over the years and also worked closely with him this time around.
For a banker, building that “connect” to become a CEOs confidante is critical. “It’s about getting to know the mindset of the promoters involved, the mindset of their organizations and the shareholders to reach a structure that generates value for all," says Kampani
In this deal too, it was Kampani’s X Factor that actually made Biyani – a traditional Enam client – reach out for him. “Kishore knew we had a history of transactions with the Birla group (Read L&T-Ultratech, Birla-AT&T-Tata, MRPL sale, Idea IPO etc). JM as an M&A bank is well respected in Birla House. And he had the confidence that we will focus on this and get this done and delivered.” Kampani is quite frank to accept.
In deals of this size, where a promoter is selling his asset, the human interface of the advisor manifests. A good rapport between Biyani and Birla’s only made it so smooth. “If one side doesn’t trust us and do not take us seriously, then how can we conclude a deal?"
Even while navigating tricky takeover situations like IVRCL or potential JVs like Diageo-Mohan Meakin, the dexterity helps. Kampani refuses to talk specifics, but market movers will insist that Essel Group’s Subhas Chandra— another Enam client— also sought JM’s help recently to crack the business physchie of Andhra Pradesh based business promoters who have been opposing his “hostile” intent. Ditto for Diageo as it engaged in a long strategic, but friendly discussion for inorganic growth opportunities in India.
But the initial discussions with Biyani were quite open ended. The mandate: Pantaloon had to get rid of Rs 1500 crore debt. And Kampani had to woo the Birlas.
So right after Vishal came back from his annual two week family vacation, in early January, “I approached the Birlas with a blue sky.”
Since then he was fronting the direct Birla-Biyani dialogue, working on the spread sheets and grasping all the other drills.
In the first meeting itself Birla told Kampani and Sushil Aggarwal, CFO, Aditya Birla Nuvo, who was also present, that the high margins and private labels of the Pantaloons fashion business was the attractive fit. Not Big Bazaar.
“We did a 4-week brainstorming with the Birla Group strategy team to understand the Future Group fashion businesses. After that, they concluded, Pantaloons was the best fit. Biyani however said this is the last business I want to sell. So I had to do something that would satisfy all,” says Kampani proudly.
The smart structuring has indeed worked. Without burning extra cash, Birla gets to expand their fashion footprint and gain national leadership across the platform. Biyani gets to retain equity, management access, yet retire debt. But the real beauty of the deal is for the Pantaloon’s retail shareholders. First additional Rs 800 crore debt of debt is getting appropriated by the Birlas. Second, they now will get upside on a new stock owned by a smart sponsor and top notch Birla management. The operations too will have a sharper focus of operations. While Rakesh Biyani stays focused on fashion, his cousin Kishore will keep his eye on another flagship, Big Bazaar. “It’s a win-win for everyone,” Kampani happily points out.
His pride is well deserved as the last few years have been personally tumultuous for his family and the firm after his father was literally hounded out of the country. Bruised yes, but a doughty Kampani braved combative rivals to stay afloat. “Challenges like that make you tougher. But we managed to sail through even the darkest of our crises,” he remembers.
Nimesh Kampani has since then returned to his family and friends but has stepped back from daily operations. Deal making has also become a far more competitive landscape of big finance. Here, Vishal’s new techniques, global vision and best practices – picked up during his Morgan Stanley stint or during his earlier MS(finance) course in London Business School – gives him the contemporary edge.
Today, therefore the buck for the entire Institutional Securities Business— Investment Bank, Institutional Equities, Fixed Income and Real Estate Fund – the lion's share of the firm, stops with him.
Only the asset management, asset reconstruction, equity broking and private wealth management pieces are being kept out.
The work is cut out as most Wall Street investment banks are aggressively targeting his traditional clients. “ Kampanis’ have great relationships with India Inc’s promoters. But today these relationships are looking at much more than what a JM Financial can deliver. The relationships alone cannot drive mandates any longer. As their relationships become non-exclusive, their playground is getting smaller,” highlights a peer from a large MNC bank, who has been in many negotiations with Vishal, on condition of anonymity.
Even in equities, argues another global fund manager, “you need high quality research, sales teams that are empanelled with institutional investors and have global relationships. They will take time to build all that.”
But Vishal is clear that he is not competing on balance sheet size.“We are a focussed capital markets and advisory house and we choose to stay there.. We don’t have the cheque book size of the foreign banks. But we want to be much more strategic with our clients.”
But what about losing market share, league table standings or traction amongst clients?
“It’s a wrong perception, that we are losing our legacy key clients to banks who can provide financing. We have over 10 mandates going on right now. We compete with ideas and connectivity and solutions. To me that is the magic formula. Trust, idea, and solutions = strategic thinking,” Vishal Kampani spills out his strategy.
India is still the trump card but Vishal Kampani is restless to create a global corridor for JM Financial involving Singapore, Indonesia, Australia, Abu Dhabi, US and UK as key outposts. “My dream is to build a multi-national Indian M&A bank. That’s what I want to focus on. My second dream is to build a very robust fixed income and equities platform in India.”
It will be a collaborative effort throughout via strategic global partnerships and alliances with at least five to six like-minded players like Greenhill, Caliburn, Rand Merchant, Mizuho, AD Capital or Samsung Securities. A global M&A and PE advisory team has also fallen into place to share the bandwidth. A 3,000 square foot office in Singapore’s swish Prudential Towers is functional. Jakarta – with a similar set up – will go live in July. The M&A license in US should also come within a year.
“We will have more than 20 people in just IB in the Asian region in the next two years. We have gained far more traction than we thought was possible in just three months of operations in South East Asia,” declares Kampani. “People will see the power of this network in the next 5-7 years.”
The business model is simple. Enter a market through strategic tie-ups to get a local look and feel. And then after creating enough buzz, explore how best maximum business can be generated. Some of the South Asian markets like resource rich Indonesia are unique and will give JM an early mover advantage to capture the India bound traffic and even get a toe-hold in those regional markets, especially in the $100 million-to-a-billion-dollar sweet spot. The strategy mantra: Build the franchise wherever you can, but buy in restrictive North Asian markets like Korea or Japan where client access to foreigners is very difficult.
In this grand scheme, the handpicked dyed-in- the- wool corporate finance executives or M&A bankers like former Morgan Stanley CEO Greg Terry and PWC’s Amitava Guha Roy, will be lynchpins. Just like at home, for Vishal and the institutional securities business five other CEOs -- Shashwat Belapurkar (fixed income & real estate), Sameer Lumba (Institutional Equities) , Atul Mehra, Adi Patel (investment banking) and Sanjoy Datta (Capital Markets Group) – are carrying the flag.
Vishal is however candid enough to admit that the equities business is under strain. “We could have done better. But in the last year, the volumes and interest levels havE been lower than anticipated. Secondly, there is no new money coming from domestic fronts too. FIIs are underinvested in India and local mutual funds and local insurance players have not managed to raise a lot of new money. So you can imagine what will happen to institutional equities business in India. Plus equity capital markets (ECM) revenues are also very low. So there is pressure on revenue streams in the last 2 years.”
But with fixed income growing in scale, the overall profitability of the firm hasn't taken a hit.
The investment advisory business is a distinct business headed by Rajeev Chitrabhanu as the CEO and Subodh Shinkar as the COO and it operates in distinct verticals viz, Wealth Management Group, Equity Brokerage Group, Lending (LAS & MF and ESOP financing) and Independent Financial Advisory Group. “As a group, we offer the full suite,” Kampani outlines the group philosophy. Both report to Nimesh Kampani directly.
From the 8 metroes where the Wealth management business is present, it advises over 300 top corporates across the country, while Equity brokerage business (also covering commodities and forex trading) operates out of 25 cities and has a franchisee network of over 400 relationships gaining significantly in the last 5 years.
These are strategic arms of the JM's business model. "Our large HNI clients also gives acess to IPO origination." Which is why wealth management's team alone is perhaps as big as the investment banking one.
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