Value and quantum of M&A deals in India coming down: K Balakrishnan

Last Updated: Wed, Nov 21, 2012 19:41 hrs

K Balakrishnan, chairman and managing director of Lazard India Pvt Ltd, is a happy man. Lazard India has been involved in seven major deals, mostly in cross-border transactions, and is hoping to close a couple of more within the end of 2012. However, things may not be such rosier next year, according to him. In an interview with Raghuvir Badrinath of Business Standard, Balakrishnan says there is too much flux in the system and they should be addressed at the earliest.

Lazard is among the top three cross-border merger and acquisition (M&A) advisors in India and you are having a good run, given the context where large transactions are getting difficult to execute. Do you intend to keep the pace going during the next year as well?
As a business, yes, we certainly want to keep up the good pace and we certainly have a good pipeline. But there are clear signs that value of deals and the quantum of deals are coming down. The amount of capital invested is almost non-existent. The key sectors — telecom and power — are in a spot. Telecom is a phenomenal value driver and when you have a situation, when there is so much of controversy, the lights of the industry will be taken off. This will obviously lead to reduction in transactions and even if those transactions happen, the value will be a trickle. On top of these, there are a lot of global issues which will have an impact, but I feel that a lot of the issues can be sorted out internally.

Given the stress in Europe and its impact on assets in India, there must be lot of interest in value hunting these days, which you must be pretty actively involved in...
We are doing lots of work in taking Indian companies global. From a market perspective, there are interesting assets to go after and Indian corporates are eager, have the cash resources and are ready. But, we are seeing a bit of caution and they are not ready to take big bets. The inbound transactions space has also become cautious. The other aspect is also about many Indian promoters wanting to do deals by not ceding control, which is a major issue when there is an overseas buyer.

In addition to the large M&As and private equity (PE) advisory, Lazard globally is known for its bankruptcy advise. But we do not see much of that aspect from Lazard in India. Is it a calculated strategy not to have a presence in that segment?
We feel the bankruptcy market is not evolved here in India. It is pretty nascent. The CDR (corporate debt restructuring) mechanism plays a big role where effectively club deals happen. We don’t find that very exciting. Predominantly, there is a consortium of public sector banks and most of them come to an agreement between themselves. In a foreign currency denominated debt, we can play a role to an extent, but where domestic currency is involved, it is challenging. The main reason is that the debt markets in India are not deep enough and the value of the publicly traded debt is not that large. If these factors come into play, then the settlement process would be much wider and the investors will also see some value. We tried in some transactions, but given the constraints, it is not a big focus for us in India.

Lazard came close to launching an India-focussed PE fund during 2008, but has since dropped it. Is there a rethink on it?
I don’t think in the near future we will look at that space. We came close to launching a $250-million PE fund during 2008 just before the financial crisis hit, but we held it back. Lazard was supposed to be an anchor investor and raise resources from other investors.

Lazard is also pretty well known in the global markets for its asset management business. Will you be debuting that business in India?
Globally, we manage around $140 billion in the classical asset management format. We have been evaluating that sector in India and it is not a space where we will rush into. The market conditions should be conducive and we feel it is quite overcrowded. But at some point of time, we may look at it. In addition to that segment, we have an offshore business which invests in Indian markets along with other emerging markets, which account for around 30 per cent of the total assets under management.

More from Sify: