Jefferies India Private, a subsidiary of the US-based Jefferies Group, recently received a Category-I merchant banking licence from the Securities and Exchange Board of India (Sebi). The investment bank came to India in 2007 and has so far raised more than $2 billion for Indian companies. Replicating its business model in the US, it now plans to launch broking and distribution services in India. Sidharth Punshi, manging director and country head for Jefferies India, speaks to Vandana on the recovering deal environment. Excerpts:
How has the financial crisis impacted the deal flow?
The crisis has impacted India much less than some of the other global markets. I think Indian companies have become cautious about investing serious money abroad without knowing how their own underlying business is going to do. There was a period during the first half of the year when Indian companies were not sure as to whether this is an opportune time to buy companies abroad, even though valuations were attractive. But what we now see is that Indian companies have done quite well in the first quarter of fiscal year 2010. The stock market is showing signs of recovery and Indian companies are beginning to seriously look at cross-border mergers and acquisitions (M&A). I think there will also be a lot of distressed and restructuring opportunities both in India and globally. After or during recession periods, balance sheet restructuring deals lead M&A activity and we are going through that cycle now.
Which are the sectors where you see lot of M&A activity? How do you see the media space since you have done lot of work in that sector?
I think industrials is one sector where we will see a lot of activity. Media is another. Media companies have high valuations, there will be a consolidation in the sector in India because there are a lot of channels. Globally, there are not more than two channels that are leaders. Here, it is more than four, and that too business channels. A very small proportion of our population invests in stock markets and not many of them are English-speaking. I think carriage costs on DTH platforms will have to come down. Healthcare is yet another vertical where we see lot of M&A activity going ahead. We will see some consolidation in the tower business on telecom side.
Do you think fund-raising has eased a lot from what it was two quarters ago?
Yes, it has. I think we have seen that globally as well. Capital markets have opened up in the US and we are currently on the market with the first internet e-commerce initial public offering (IPO) since 2007 (VITACOST). Demand has been favourable in India. We have seen a lot of offerings of qualified institutional placements (QIPs) and global depository receipts (GDRs). Liquidity is favourable compared to what it was two quarters ago. When we talk to institutional investors, the sense we are getting is, that they are very positive on India. They want to be here as long as there is a right proposition. The government, on its part, has shown a lot of effort in some of the recently concluded divestment programmes. We have recently successfully re-opened the foreign currency convertible bond (FCCB) market with an issue for Amtek Auto.
How are things looking on the private equity side?
Private equity financing is now facing pressure from the public markets, be it QIPs, GDRs and now the opening up of the IPO and FCCB markets. Promoters and companies have now access to more avenues of capital than they had probably six to nine months ago. However, private equity funds are long-term investors. The current valuation cycle and capital market liquidity will not change their apetite to invest in India.
What are your plans for India?
We have had a successful year on M&A advisory and restructuring and have selectively built up our team, including a few recent senior hires on the investment banking side. We see opportunity in the Indian capital markets and our next goal is to build on our distribution capability. We are committed to India for the long term and are looking to foray into broking and distribution.