The downturn in the global economy affected most investment bankers and Standard Chartered, with virtually no significant deals achieved in this financial year so far, is no exception. However, the UK-based bank, which has a special focus on Asian markets, is working on two deals that could make it the top deal-maker at the end of the year. The bank is co-advisor to Bharti Airtel in its merger talks with South Africa’s MTN Group. Besides, it is a sale-side co-advisor for Aircel’s plan to sell telecom towers. Prahlad Shantigram, global head of mergers and acquisitions (M&As) at the bank, talks about the changed environment for M&As in an interview with and email response to Abhineet Kumar. Excerpts:
Can we expect further domestic consolidation due to over-leveraging by some companies?
We do expect a pick-up in M&A activity, not just as a result of overleveraging necessarily. With the economy coming back on track, the overleveraging impact will get mitigated to an extent. Coupled with this is the return-of-risk appetite, which is a key driver of acquisitions. Also, remember that equity markets have improved and companies can raise capital efficiently now to counter any leverage issue.
Unlike overseas acquisitions, funding for domestic deals is costlier as banks are not allowed to lend for buying equity. Do we have enough financial support to accelerate pure domestic deals?
Significant regulatory and structural challenges remain for acquisition financing for domestic deals through debt. This leaves these to be essentially funded by equity — whether the acquirers’ own cash or private and public equity issuances.
Has the tide of Indian companies looking for overseas acquisitions turned back?
Indian corporates have definitely become more careful about looking at international transactions, but no, the tide has not turned back. The global economy is far from convincingly being out of the woods. This naturally increases the threshold of strategic necessity that any deal has to clear for it to be a ‘must-do.’ Add to this the relative lower availability of financing for deals (which, by the way, is changing) and you have a fall in this kind of deal flow. As the economic situation improves, we do expect more activity.
How has the cost of acquisition finance for cross-border deals changed vis-à-vis the last year’s peak?
The spreads for cross-border acquisition finance have tightened significantly recently as liquidity comes back. You must remember that the benchmark itself has fallen significantly. So, the overall costs may not be that much different.
Access to financing has improved for cross-border deals, but how far have things changed for leveraged buyouts?
You are right — access has improved. I suspect that you will not see the kind of “covenant lite”-type financing or even the leverage levels that you saw globally in the recent boom come back in a hurry. We must be careful not to confuse this with debt financing for well-structured strategic transactions, for which the appetite is still there.
Apart from Bharti Airtel, can we expect that more Indian telecom companies will look for overseas acquisitions, especially in Africa?
Without getting into details, let me say that if you were a telecom company looking for growth and low-penetrated markets, Africa is an obvious choice.
What is your view on the potential for domestic and cross-border deals within the IT industry?
The fundamental rationale for IT deals, both inbound and outbound, remains compelling. Indian players will continue to buy specific competencies and market access in the rest of the world while overseas companies will continue to value India’s offshore capabilities. In addition, significant ownership in this with financial sponsors with limited investment horizon will further drive M&A activity