Promoters keen to close deals quickly knock on syndicators’ doors.
A revival of private equity (PE) deals is giving syndicators such as mid- and small-sized investment banks and accountancy firms good business.
As demand for capital revives, promoters of companies are asking these syndicators to get them a quick deal from PE firms. This is likely to take the syndication business to the 2007 level, say experts.
“A significant turnaround has happened in PE syndication after a lull of about two years,” said CG Srividya, partner at Grant Thornton, an international accountancy and business advisory firm. Her firm helped Micromax Infomatics, a domestic mobile handset maker, raise $45 million from global PE firm T A Associates this year.
The first four months of 2010 saw 107 PE deals worth $3.7 billion. An estimated 60-70 per cent of these were through syndicators. In 2009, there were 221 PE deals worth $12 billion. But, transactions worth approximately $8.6 billion were through qualified institutional placements and syndicators did not get much business. Investment banks and accountancy firms charge 1-3 per cent of the transaction amount as fee.
“There is convergence in valuation expectations now and so promoters are keen to close deals quickly. Hence, they are approaching the syndicators,” she said.
“There is such a robust pipeline for PE syndication that we expect revenue from it to match the revenue from our M&A business,” said Jacob Mathew, managing director, Mape Advisory Group, an investment banking firm. His firm helped Chennai-based Star Health Insurance raise Rs120 crore from ICICI Venture this year.
Last week, Equirus Capital advised Dalmia Cement in raising Rs 750 crore from global PE firm KKR. Mukesh Jain, director of Equirus Capital, who executed the deal, said, “Promoters who planned to raise capital but could not do so in the last 18 months due to the economic crisis are back to the deal rooms. So, there is pent-up demand and if this year’s trend continues, we should be back to the 2007 level in the PE syndication business.”
Private equity investments are unique in that they come with a lot of governance issues. And, most of the times, promoters of unlisted companies who want to raise funds are apprehensive about the terms and conditions that may come with these investments. This prompts them to go to syndicators.
“Syndicators help promoters find the right fit in terms of cultural coherence and price discovery,” said Gaurav Deepak, managing director of Avendus Capital. “There are promoters who can approach PE firms directly but prefer to come through us as we understand the terms and conditions of the PE business better.” His firm advised pharmaceutical company Famy Care raise $50 million from PE investor AIF Capital.
