What is common between Sanjay Bansal, former managing director (MD), Ambit Corporate Finance, and Ashok Wadhwa, chief executive officer (CEO), Ambit Group? Nothing. Except, they worked together for 14 years. But two months ago, another common factor cropped up between the two when Bansal decided to set up his own venture — Aurum Equity Partners, a Delhi-based boutique investment bank. By doing so, he followed Wadhwa's path who had set up Ambit in 1998 as a small boutique bank that has grown as a leading financial institution.
Bansal and Wadhwa had worked together in Arthur Andersen India in 1996-97. Wadhwa quit Arthur in 1997 to set up Ambit. After a year, Bansal joined him. Bansal held the position of MD, Ambit Corporate Finance, before parting ways with Wadhwa.
Bansal is among several I-banking veterans who have made the shift from large global banks or financial institutions to the small world of boutique banks in the recent past.
“When I moved from Arthur Andersen to Ambit, I had strong entrepreneurial instincts and belief that Ambit could create a niche in the market. So, my reasons for leaving now are driven by my personal desires of entrepreneurship to build another hopefully different I-banking firm,” said Bansal.
He also believes this would be the right time for a new entry into investment banking space. "Global banks are closing, sheen of big-boy banks is disappearing, valuations are more real and markets remain tight. In my mind, this is the perfect time to start such a business when people believe I-banking is dead. I believe not," he said.
Another veteran who slipped into an entrepreneurial role was Rajeev Gupta, who quit as India MD of leading private equity (PE) firm Carlyle, to set up Arpwood Capital.
Others who have tried their luck in the current downturn are Manisha Girotra, former MD, UBS India, and Prahlad Shantigram, former global merger & acquisition (M&A) head at Standard Chartered Bank. Girotra has been given a mandate to steer global investment bank Moelis’ India expansion as CEO, while Shantigram is yet to take a final decision on his future plans.
Girotra, the glamorous face of Indian I-banking industry, had spearheaded some of the largest deals such as Vodafone’s acquisition of Hutchison Essar, Hindalco’s Novellis buyout and United Spirits-Whyte & Mackay.
One of the major reasons for the success of boutique banks is the growing number of small and mid-sized deals in India in the last two years. About 342 M&A deals worth $6 billion below $100-million category took place in India last year, while the number of $100-200 million range deals were 29, worth $4.1 billion. Only three deals worth $1.3 billion took place in the range of $400-500 million in India in 2011. In 2012, there were no deals in the $400-500 million category. In the below $100-million category, about 112 deals worth $2.2 billion has taken place so far in 2012.
"Yes, the action will be in the $100 million and below range. I would say even more in the $25-50 million range. This is an area where boutique banks will play very hard against the incumbents," Bansal said. Aurum will have a sweet spot for deals in the range of Rs 100-400 crore.
Jacob Mathew, founder & MD, MAPE Advisory, said, "The small and mid-sized companies can’t afford the $2-3 million fee of large investment banks. Also, paying such a fee for even a small deal is not worth it."
According to him, the larger number of smaller deals always push demand for boutique I-banks in India. Boutique banks charge two-three per cent of the deal size. Mathew, who worked as vice president (M&A) at DSP Merrill Lynch, quit in 2001 to set up MAPE Advisory along with colleagues Ramprasad and Ajay Garg.
The current downturn with global banking majors has also brought luck to MAPE Advisory. The boutique bank had hired Sunil Mehra, former MD at Standard Chartered, who had steered a few of the largest M&As such as Tata Chemicals’ $1-billion acquisition of General Chemicals and Mylan’s $736 million buyout of Matrix Labs. Mehra with his 20 plus years of experience drove M&A businesses of DSP Merrill Lynch, Kotak Mahindra and ABN AMRO.
Most global banks have a fee benchmarks, which is sizeable in the Indian context and allowed fewer Indian deals to be eligible for global banking advisory. This has now disappeared due to the big deals also vanishing given the market dynamics for domestic and cross border, said another banker.
Hemendra Kothari, ace investment banker, believes the relationships will give a strong base for each boutique bank.
In case of Rajeev Gupta, the strong relationships he held with corporates and high net worth individual during his 11-year stint at DSP Merrill Lynch, have brought luck in closing the first deal for Arpwood Capital last month. He had advised business historian Gita Piramal to sell her 95 per cent stake in furniture company BP Ergo to American furniture major HNI Corp in a Rs 200-crore transaction.
Gupta, 54, had set up the M&A business of DSPML in 1996. Gupta, who spearheaded large M&A deals such as Holcim-ACC, Tata Teleservices-Hughes Telecom and Lafarge-Tisco, quit DSPML to join Carlyle India in 2005. After a five-year stint, he quit Carlyle to set up his own venture. Gupta did not respond to BS queries on his new venture.
The flood of small-ticket PE deals also pushed the entry of boutique banks to tap the opportunity. Against one deal worth $400 million, Indian PE space had seen 431 deals worth $6 billion under the $100-million category in 2011. In 2012, only two PE deals took place in the $200-300 million range.
Experts, however, believe this would be only a passing phase and big boys will bounce back when the market stabilises. Kothari said, “These changes are just part of the bad phase which is going on. I believe the recent changes at I-banking space are part of the slowdown. Also, boutique banks have limitation in IPOs, where they will not be able to do distribution, though they can manage the valuation.”
A few believe co- existence of investment banking advisory with a supermarket approach by offering broking and asset management services is a story of the past.
“I think big balance sheet investment banks (essentially for funding needs of clients) and boutiques (real advice to clients) will exist. People in the middle running super-markets in India will get squeezed,” Bansal said.
