The I-bank shuffle

You don’t need to be Einstein to figure out that a slowing economy coupled with the huge shakedown on Wall Street isn’t good news for investment banking advisors. Deal flows have slowed down, as data from Thomson Reuters on mergers & acquisitions (M&A) involving Indian companies that have been announced reveals. Till December 15, some $51 billion worth of such transactions have been announced in 2008, against $56 billion in 2006 and $69 billion last year. If the current year’s figure doesn’t appear a washout, it’s thanks largely to a clutch of bigbang inbound deals, like Ranbaxy-Daiichi Sankyo, Tata Tele-NTT DoCoMo and Unitech-Telenor.

Unsurprisingly, investment banking fees from various capital market operations have halved—from $1,426 million in 2007 to $758 million a year later. On the outbound front, the multi-billion dollar acquisitions of India Inc. have reduced to a trickle. And that’s one reason for the I-bank league tables in 2008 sporting a new look. Five of the top 10 grossers of 2007 have dropped out of the elite league this year.

Take, for instance, UBS Securities, the top advisor of 2007, which was instrumental in mega-deals like Hindalco’s $5.7-billion acquisition of Novelis, and Hutchison’s $11.1-billion stake sale to Vodafone. This year, UBS has slipped to #19.

The new entrants in the top 10 include Lazard India, JPMorgan and Religare Capital Markets. Lazard India has made the biggest leap, from #22 last year to #6. Lazard was at the forefront of one of the few notable outbound transactions—the acquisition of the US-based General Chemicals Industrial Products by Tata Chemicals. Lazard also advised the Tatas on another deal—this time, an inbound one when Tata Teleservices sold a stake to NTT DoCoMo of Japan.

Religare Capital Markets debuted in the top 10 with just two deals, one being group company Ranbaxy Laboratories’ 35 per cent stake sale to Daiichi Sankyo for $4.6 billion.

Bankers don’t expect to see a pick-up in deal flow in a hurry. “We are still a few quarters away from seeing that happen,” says Sameer Nath, Head (M&A), Citi India. A lack of appetite among banks to lend for funding acquisitions will be another hindrance.

“From a strategic point of view, there are good opportunities to acquire assets at reasonable prices. Companies haven’t closed their eyes to such opportunities, but acquisition financing could lead to a slowdown in such deals,” adds K. Balakrishnan, Managing Director & CEO, Lazard India.

The tough times, feel bankers, will make restructuring the area of focus back home. Says Sachin Batra, Head (Private Equity & M&A)-Investment Banking, Religare Capital Markets: “The consolidation is bound to happen in sectors such as real estate and financial services, and it will throw up opportunities for mergers or takeovers.’’ Let the shakeout begin.