Deal making is sometime away: Equirus Capital Founder & MD Ajay Garg

'PEs' interest in NBFCs will depend on book value determination. Until that process gets over, you will be circling around,' he said

The mid-market investment banking and private equity (PE) firm, Equirus Capital, has been involved in a significant amount of deals in recent times. The impact of Covid-19 will be felt in a big way by mid-market firms. Ajay Garg, founder-managing director of the firm spoke to Raghu Mohan. Edited excerpts:

On whether deal making is at an inflection point

Not yet. We have just started to see first level of impact on the economic front in the first quarter. In the private equity (PE) and mergers and acquisitions (M&As) market, there are more discussions on the relevant prices. And the larger listed firms are looking at rights’ issues. But that said, Covid-19 is definitely a consolidation trigger. As to when this will become an inflection point, that is sometime away. You have no revenue visibility. So, any consolidation would only mean additional costs. We will see a significant amount of technology M&As. All solutions that are enabling digitisation of an organisation, are in huge demand.

On fundraising by banks

The main issue for banks in raising capital is current prices are most often below the book value. So, it becomes that much harder for them to dilute. We will have to see how their stock prices behave before taking calls on fundraising. But yes, over the next year, every bank and non-banking financial company (NBFC) of reasonable size will have to raise money.

On PE interest in NBFCs

A few deals were called off because of big-time valuation mismatches. Most of the NBFC PE deals till March were in the retail lending space. They were getting good valuations at three-four times the book. But now, a lot of these discussions are being revisited. The data points have got marred with the extension of moratorium till August. Until the book value determination process gets over, you will be circling around. 

On banks interest in fintechs

Banks think that fintechs can be an integrated technology linked to their offerings and this should be good enough for roll out. There is not much enthusiasm to buy out fintechs. But yes, acquiring a technology platform is definitely something they may look at. Most of these banks have also tried to build it on their own. As for payment platforms, I think to a large extent, banks have been looking at these to be sold. Axis Bank gave its entire automated teller machine network to Prizm (now Hitachi Payments) and ICICI Bank gave its point-of-sale business to First Data.

On demand for co-working spaces and realty

I think demand for co-working spaces would not go up because people are absolutely paranoid about meeting strangers. They are getting more comfortable with the work-from-home concept. At least for the next 12-18 months, there is significant visibility on that datapoint. It would be safe to assume that staying close to your office in so-called prime locations may not be all that prime any more. As long as you have good bandwidth connectivity, you don’t need to be near your office.