How a 4-year-old boutique firm clinched 2nd spot in M&A league

It took 30 trips to Russia over two years for veteran investment banker Rajeev Gupta to bring in the single largest foreign direct investment (FDI) of $12.9 billion when he helped Ruias sell their 98 per cent interest in Essar Oil to Russian oil major Rosneft late last year. The deal included the sale of Essar’s Vadinar port in Gujarat and its facilities worth $2 billion.

This also helped Arpwood Capital, boutique investment bank, co-founded by Rajeev Gupta and Raj Kataria, to grab the second spot in the mergers and acquisitions (M&A) league table four years after the pure advisory firm was set up in Mumbai. Mergermarket, an M&A intelligence service provider, said the boutique firm advised on deals worth $17.3 billion in 2016. It followed Nimesh and Vishal Kampani’s JM Financial, which advised on deals worth $27.8 billion in the year.

“Finding this kind of capital to invest in India was the key challenge. Once we had that clarity the focus was to address it,” says Rajeev Gupta talking about the Essar Oil deal. Prior to this, the single largest foreign investment in India was by UK-based Vodafone, which bought a 67 per cent stake in Hutch Telecom for $11 billion in February 2007. Vodafone is facing retrospective tax issues, which has made some foreign investors wary.

Gupta is one of the most experienced investment bankers on the street, having spent about three decades in deal-making. After his long stint at DSP Merrill Lynch (DSP ML), where he headed the investment banking division, Gupta moved to head global private equity giant Carlyle’s India business. Four years ago he partnered with his former colleague from DSP ML, Raj Kataria, to set up Arpwood Capital. Kataria had spent two decades with DSP ML before he joined hands with Gupta.

Essar Oil is not the only billion-dollar deal in the boutique firm’s kitty. Arpwood was also the advisor to Lafarge-Holcim, when it sold its interest in Lafarge India to Ahmedabad-based detergent and soap maker Nirma for an enterprise value of $1.4 billion.

Gupta says the Lafarge deal was far more challenging than Essar Oil’s sale. “For this deal people who had money were not allowed to bid,” he says. UltraTech, Shree Cement, Dalmia Bharat and the Emami group were prohibited by the Competition Commission of India from bidding for Lafarge India’s assets as that would have given them a monopolistic position in the relevant markets.

“We felt that while there are many bankers – most were doing the execution work instead of creating the transaction,” says Kataria talking about what clicked for Arpwood at a time when bulge-bracket banks have lost ground in India. “The client appreciates a bank that generates the idea, because if the client has to get the idea then what value is the bank bringing?” says Kataria.

This is true especially in the case of Max Financial Services and Max Life’s merger with HDFC Life that will make the new entity India’s largest life insurer among the private companies.

Analjit Singh, founder and chairman emeritus of Max Group, introduced the person who made the strategic alignment happen, investment banker Srinivasan Balasubramanian from Arpwood Capital. “Deepak bhai (Parekh) probably showed him both doors when he went to him. But he made a proposal that made good sense for both partners. We have done the right thing for the right reasons,” he said, thanking Balasubramanian.

Started with Gupta and Kataria, Arpwood Capital has 11 members for the investment banking business now. The boutique firm has achieved success at a time when global bulge-bracket banks have shrunk their operations significantly in India as they realigned their focus to their key markets after the financial meltdown that followed the 2008 global financial crisis. It is this lost ground that Indian firms are trying to occupy to win deals.

However, the league tables are always tricky as one large deal can push a firm on top. The challenge will remain to continuously find such opportunities.