Many of the mid-sized investment banks have outgrown their earlier boutique avatar. Today, the busiest guys on the street are rewriting the M&A code with their exclusively Indian imprint.
They do not flaunt their Ferragamo ties at work or come from the hallowed halls of global finance. Instead, India’s local investment bankers are coming of age and reinventing themselves, even in the current slowdown. Their DNA matches multinational peers, in deliverables and finesse; but today, they are busier, handling larger and far more complicated mandates. They charge the same percentage fee that the big boys do. But, with lower expenses to worry about, they are happy to work in the $100-200-million sweet spot.
Now, small has become strategic.
Today’s segmented market allows distinctive plays for each one of these local outfits. For large MNC banks, many of the smaller, local entrepreneurs may not be relevant at all. The deal sizes would also have limited traction. But, as bulge-bracket firms scrounge around for billion-dollar mandates, the action has clearly moved to the mid-markets, where an Avendus or a Mape has an edge, providing constant handholding to their client sets. Such value-added efforts and “senior attention” that begin way before, or continue even after a deal gets brewed, are increasingly getting recognised, especially during the slowdown. “The downturn has helped us stand out and be counted.” says Shiraz Bugwadia of O3 Capital.
In a two-part series, we explore how these banks continue to punch above their weight. They are seeking a new X factor by either breaking into new markets or identifying future megatrends.
Moreover, they are all going beyond the personality cult of their founders to build credible organisations.
You may assume that with his disarming guy-next-door appeal, it’s a cakewalk for Deepesh Garg to win friends and influence people. But, any investment banker worth his grey hair will testify that while personal charm may help break the ice, what finally matters is delivering results for your clients every single time.
That is the secret to longevity in the hyper-combative, adrenaline-charged world of deal making – the magic formula that Deepesh and three of his friends who co-founded O3 Capital six years ago are trying to preserve today.
“An individual relationship will get you the mandate. But, it’s the delivery mechanism of the franchise that eventually matters the most,” says Shiraz Bugwadia, fellow managing director with Deepesh at the firm. So, even after closing 20 deals in as many months , O3’s founders would rather focus on the fundamental building blocks.
Investment banking, especially in the Indian mid-market space, has always been much more than just pure transaction advisory and savvy financial modelling. “Entrepreneurs need somebody to be able to walk them through the entire journey of their respective company’s growth,” explains Srinivas Tekal, in charge of the Bangalore office and responsible for the technology and infrastructure mandates.
But, as businesses grow and achieve more complexity, the same entrepreneurs are seeking a whole new set of strategic answers. And, to stay relevant in a changing set-up , O3, too, has had to future- proof itself. It’s no longer about the talents of the four individual founders but about strengthening the bond that is more institutional in nature.
“We are confident now of managing our clients in complex situations. I can’t remain a small player myself and expect my client to rely on me when he’s eyeing a $200-million transaction. I should have proven capabilities to win his confidence,” the pride in the voice of Shyam Shenthar, O3 Capital’s CEO and MD, is unmistakable.
Banker-turned-clean tech maverick Arvind Bansal could have chosen any M&A rainmaker he wanted, but he opted for O3 to help his firm raise private equity. “They look at a deal through an entrepreneur’s eyes,” says Bansal, founder & CEO, Continuum Wind Energy. O3 roped in Morgan Stanley Infrastructure Partners to invest Rs 1,200 crore for a majority stake in the company – one of the largest fund- raisings in the sector.
What has helped 03 cut through the clutter is its focus on a handful of verticals – technology, life sciences & health care and consumer, infrastructure & industrial. But, the trick is to go deeper in each, identifying sub-segments and reaching out to potential clients even beyond the usual Tier-I hotspots. “We picked up on the education sector early on. We predicted that the road sector would need capital. In health care, we have done a bunch of deals in hospitals. If your approach is long-term, you need to get proactively involved wherever the opportunity is,” says Garg.
Venturing outside the big cities for a larger geographical coverage has a two- pronged advantage: Pune, Chandigarh, Coimbatore have emerged as new hubs. Some are even established centres of manufacturing and here, local businesses are now exploring strategic growth opportunities. “Referrals also matter a lot in these markets. It’s a close-knit entrepreneur circuit. So, after our work for Cremica Foods, we got three more calls in Ludhiana alone,” Garg adds.
O3 has also been successfully leveraging its international affiliation with IMAP – an international network of M&A firms for a wide global reach. IMAP’s European network helped consummate Motherson Sumi buying out Germany’s Peguform for over ^300 million in a headline deal of 2011. “We knew the buyer, our German partners knew the seller. Through IMAP, we are able to capture deal traffic from various markets, especially Europe, which is seeing a renewed interest in manufacturing,” says Bugwadia.
With three more deals from the region brewing, things are hotting up.
When it comes to deal-making prowess , it’s tough for any young banker working under M Ramprasad and Jacob Mathew in their investment banking outfit Mape Advisory, to fill their oversized shoes.
Here’s one example why: Ramprasad — or just ‘Ram’ as his friends call him — and Jacob, along with their client, Jyothy Laboratories, had been eyeing Henkel’s ailing India business for years. In fact, Jyothy and Henkel had even undertaken detailed reconnaissance of each other in both Germany and India. Yet, a non-committal Henkel decided to initiate a competitive process to sell the business, mandating HSBC.
So, the day the bidding process began, Ram organised a strategic coup by getting Henkel’s existing Indian joint venture partner, A C Muthiah, to sell his 14.9 per cent stake to Jyothy. With such a big bite into the company, in one swoop, the deal was dead for all the other potential candidates and Henkel was completely outsmarted. “It was a tactical move. We aborted the competitive auction,” remembers Ramprasad. “We had to leverage our existing relationship with Muthiah to help a client,” he adds.
But then, doesn’t their overwhelming presence make it difficult for Mape’s gen-next to flourish? Both Ramprasad and Mathew downplay the perception. “The nature of engagement in our business is about individualistic skills,” quips Ramprasad. “The idea is to monetise relationships for the benefit of a firm – but to say Mape is dependent on just the two founders is a fallacy. Our juniors go out and source business on their own.”
Jacob cites some recent examples to underscore his point. “When we advised L&T to acquire AIG Housing, or during the Agilyst-eClerx transaction, Ram or I didn’t even attend the meetings or negotiate fees. Ram intervened only in a crisis situation,” he says
Sometimes, sticky situations require grey hair, but both Ramprasad and Mathew — friends since their DSP Merrill Lynch days who in 2001 decided to set up shop by each putting in Rs 50,000 of their own savings — have been busy playing the mentor’s role at Mape. After over a decade of surviving in a cyclical industry and closing over 80 mandates worth over $2 billion, managing organisational issues are now as important as seeking new business.
Mape has been recognised as a specialist. “Somewhere in our DNA, we are an M&A shop. That’s where the true investment banking mettle comes to the fore. Left to ourselves, we would focus on that,” says Mathew.
From the beginning, Mape set out to do mid-sized deals for large Indian companies but today, apart from those, even many large Indian multinationals — from Dr Reddy’s to Mahindra, Wipro to L&T — tap into its skill set when it comes to complex buyouts.
“We worked with Mape in the defence and aerospace field. They quickly grasped the sector. It’s tough to wade into it suddenly. But, I could see it was specialising very quickly,” says a senior Tata Sons executive who did not wish to be identified.
Ramprasad says that as a banker, you need to think like an entrepreneur. Only then can you really be beneficial to a client. “They stick around even after the work gets done and build a relationship around the organisation and not just a deal,” says K Ullas Kamath, MD, Jyothy Laboratories.
These strong client-connects help in repeat mandates that make for 80 per cent of Mape’s business. But, like any other organisation in its adolescence, Mape, too, has had its share of ups and downs. Even though last year was one of the best in terms of the $10-million revenue earned, Mape has lost people this year. “But, even in the past, many who left came back. We are hoping the trend will continue. The team has grown together,” says Ramprasad.
Next on Mape’s agenda: Breaking into the north Indian market, which till today is a weak spot for the firm.