The investment banking arm of Morgan Stanley India concluded a significant private equity deal last month, the Rs 800-cr Warburg Pincus buyout of Kishore Biyani’s Future Capital. V K Bansal, chairman and managing director of Morgan Stanley India’s investment banking business, spearheaded it. A seasoned investment banker with over 35 years of experience, he speaks to Reghu Balakrishnan about the deal and the merger & acquisition (M&A) scenario in India. Edited excerpts:
How do you evaluate the Warburg Pincus-Future Capital deal?
Kishore Biyani was concerned about finding the right kind of buyer, so that the morale of the management team remains and they are happy with the change in management control. He was keen on achieving both the objectives — to get the right valuation and a right buyer who’d aid in growing the business and one the management feels happy to work with. Warburg Pincus has strength in this sector and they certainly wanted to grow in this segment. They were also impressed by the management team.
Warburg clinched the deal at a premium of only 18 per cent. Why wasn’t a huge premium paid?
If you look at the situation, the premium varies from 20-25 per cent to 40-50 per cent. It is within a range that we have seen the premium fluctuate. It is also a function of how you calculate premium. If you see this on an average of 60 days’ price of Future Capital, then this premium becomes almost 25 per cent. One shouldn’t focus on a one-day or seven-day price but over a period of time, to calculate it.
Is the non-banking finance sector getting attractive? Is there growth potential for NBFC sectors?
People are cautious on investing in the sector. For an NBFC, the management has to be solid and it should have a good rating, to attract investment. NBFCs will continue to grow, as they are now focusing on niche areas like real estate, vehicle funding, housing finance companies and gold financing. As they are focused on these classes, they are definitely going to see growth.
What are the M&A trends seen?
This year, capital market activity has been muted. We have had a few deals like MCX and ONGC. Whereas, the M&A market has been very active with $17 billion worth of deals concluded in 2011-2012, and the pipeline is strong as well. If there is no FDI (foreign direct investment) limit, the scenario would change. However, no investor is saying they’d stop investing. If it makes sense, they will still invest. For outbound deals, companies will continue to look for raw material opportunities like coal, energy, oil & gas. Outbound deals will continue wherever there are synergies or possibility of consolidation or opportunities for backward integration.
Most Indian firms are family-run. Doing deals in such a scenario must be difficult.
More From This Section
There is not much of a concern on this aspect now. If there is a good valuation and the promoter likes the deal, it can be done. The emotional value that the promoter had earlier is declining. In these markets, leverage is triggering deals; since we do not have good capital markets, the companies take on more debt. The promoters are now taking a look at what is the core and non-core businesses, and are willing to consider a good offer.
Which non-traditional countries have shown interest?
The Japan-India corridor has been very active. These have mainly been inbound deals. Outbound deals can be seen in Indonesia, Australia and Africa, as their attraction is their natural resources. Other regions, including West Asia — Qatar, Abu Dhabi — and Canada also have interest, apart from the traditional countries.
How is the pipeline for foreign investment?
There is lots of interest in the retail, insurance and banking sectors. Once regulations change, we can expect more activity.