You have been quite active in the small- and mid-cap arena. Are these entities now looking at tapping the capital market through initial public offers (IPOs)? What is the investor response to such issues?
We define mid-market companies as those with market capitalisation of $100 million (Rs 450 crore) to $1billion (Rs 4,500 crore), and you should expect to see several mid-market companies coming to the market this year. Investors find them attractive as they tend to be priced at a discount to the large caps. Additionally, these companies have higher growth characteristics, more focused management teams and simpler business models.
Why do so many qualified institutional placements get withdrawn during the road-show phase? Is it due to tepid response from potential investors?
Yes, several issues were pulled out, especially towards the middle of 2009, when the stock markets were on a tear. The biggest problem has been pricing. By that I mean the demand that the company saw from institutional investors was at a price lower than Sebi’s (Securities and Exchange Board of India’s) floor price, which is essentially a two-week average. This tends to happen in a volatile environment like last year. When that happens, the company has limited options.
Competitive bidding seems to be happening at regular intervals in India, Great Offshore, Orissa Sponge and Fame India being the recent ones. Is India moving towards an era where one would see more hostile bids?
This is a sign of increased M&A activity, which you see as economies come out of recession. Management teams at companies will look at inorganic growth as they get more confident about the stability of their core businesses. M&A transactions involving public companies can be classified as either “friendly” or “negotiated” bids and “hostile” bids. Most acquirers prefer negotiated transactions since they typically involve less time and lower costs. Hostile or unsolicited bids tend to fall in two categories: Offensive and defensive. An offensive move is made generally when an overture made by an acquirer has been rebuffed by the target’s board. In a defensive move, an acquirer will make a competitive bid for the same target in order to defend market share or scuttle another transaction. Expect to see more of this in India.
