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M&A in India has been long dominated by international banks that have consistently captured the top five positions in annual rankings. But for the first time two homegrown investment banks have broken into this club this year with ICICI Securities and Kotak Investment Banking, respectively, placed at fourth and fifth positions, according to Bloomberg data.
These are closely followed by JM Financial at sixth place. This puts them ahead of Goldman Sachs, Morgan Stanley, Standard Chartered, JPMorgan, HSBC and UBS. The top three positions, however, are still with international heavyweights, Citi, EY and Bank of America Merrill Lynch.
“It captures the changes that have taken place since the election results were announced. The change in the economic environment has boosted the confidence of local companies,” said Sourav Mallik, senior executive director and head of M&A at Kotak Investment Bank. His bank advised on 15 transactions worth over $4.4 billion, including group firm Kotak Mahindra Bank's acquisition of ING Vysya Bank in a $2.4-billion deal.
While global banks have an edge in cross-border transactions, domestic players claim to have greater bonding with local companies. “Indian clients are more comfortable with domestic banks in their understanding of the local environment. Even the inbound deals have a strong domestic leg and investors coming in want to have better understanding of the market, so domestic banks have an edge,” said Ajay Saraf, executive director, ICICI Securities, which advised Ranbaxy during its $4.1-billion acquisition by Sun Pharmaceuticals.
Other inbound deals of significance were in e-commerce, where existing investors pumped in about $3 billion, including Amazon’s buying $1.2 billion worth of equity in fashion e-tailer Jabong. But e-commerce players did not involve rain makers in these transactions.
This left the M&A market open to domestic consolidation, which saw stressed assets changing hands. The power sector has seen M&A worth about $4 billion in the year with Adani Power, JSW Energy and Tata Power buying assets from highly leveraged players like Lanco Infratech and JP Power Ventures.
"We capitalised on the consolidation theme," said Atul Mehra, joint head and co-CEO of investment banking at JM Financial, which advised Reliance Industries on its acquisition of Network18 Media & Investments and TV18 Broadcast. It advised in over 10 transactions worth $4.3 billion during the year.
“The opportunity was there because of a fragile equity market and the need for deleveraging balance sheets. This facilitated consolidation among domestic players and for MNCs to further consolidate their holdings and business interests," Mehra added.
But the success of local banks also owes itself to their ability to advise on large as well as small deals. This helped them rank over many global banks that target only big deals. "Large banks have a fee structure with a minimum threshold which does not suit small deals unless it is for a strategic reason to support a client," said Raj Balakrishnan, head of investment banking at Bank of America Merrill Lynch, which advised on six M&A deals worth $7.7 billion during the year, including Diageo’s $3.1 billion acquisition of additional stakes in United Spirits.
The investment banking arm of Ernst & Young, the global advisory firm, ranked second with 31 transactions worth $8.3 billion. Citi topped the league table with only five deals worth $8.4 billion, displaying its continued strength in high-value deals.
"After an economic slowdown usually things first start picking up in the secondary market, then it comes to capital raising in the primary market followed by domestic M&A and inbound deals, and finally outbound acquisitions," said Balakrishnan. "So we are hopeful that large outbound deals will finally come," he added.
