Sameer Nath, Managing Director and Head of Citi M&A’s operations in India, feels that Indian CEOs are more willing to consider transformational deals today and that corporate confidence has rebounded strongly. Nath, under whose helm Citi advised Tata Motors on its $2.3-billion acquisition of Ford Motor’s Jaguar and Land Rover brands earlier this year, served a stint at Salomon Smith Barney which was acquired by Citi in 2001. He spent six years in technology investment banking with various clients in the US and India resulting in over 40 M&A transactions, including selling Citi’s unit in India to Tata Consultancy Services for $505 million. Nath, who holds an MBA degree from the University of Chicago, moved to India in 2008 to head up Citi’s M&A practice. In an interview with VCCircle, Sameer Nath talks about the M&A outlook for 2011, significant trends in 2010 and the deal-making appetite of India Inc. Excerpts:-
It is said that corporates have a cash balance of $3 trillion worldwide and the M&A market will flourish in the next few years. How do you assess the Indian M&A scene in that backdrop?
2010 has been a record year for India M&A. As per market data, announced M&A volume has surpassed the previous record of $68 billion achieved in 2007. For outbound M&As, the strength of corporate balance sheets in India has been a positive driver. In addition, the environment for acquisition finance has significantly improved, allowing Indian corporates to tap multiple sources of funding. Inbound and domestic M&A are also up significantly (on y-o-y basis) in 2010. As we have seen from some high profile deals, the fundamentals of inbound M&A remain intact as overseas acquirers continue to view India as strategic to their global growth plans. Catalysts for domestic M&A could be corporate reorganization and consolidation within “fragmented” sectors. Looking back on 2010, one could say the level of M&A activity exceeded initial expectations. Looking forward, it is difficult to predict a material increase over record levels but there is reason to believe that M&A volumes can be sustained. Corporate confidence has rebounded strongly and Indian CEOs are willing to consider transformational deals.
Companies in Latin America and Africa are emerging as M&A targets especially for Indian companies. What is the significance of these markets? What kinds of deals will they see?
We saw the $10.7-billion Bharti-Zain Africa deal in 2010. But when we consider Latin America and Africa, many of the countries are rich in natural resources including oil, gas, iron ore and coal. And, several Indian corporates (as well as the government) are seeking to secure energy and raw material/mineral supplies to achieve their growth objectives and these sectors could see larger deals. Beyond these sectors, we have seen Indian corporates pursue consumer or demographic driven acquisitions in markets like South Africa. These deals tend to be smaller.
In established markets like the US/EU, Indian companies are seen engaged in mid-market deals. Are Indian firms more keen on deals in the US/EU region compared to Asia?
In most sectors, you cannot aspire to be a global leader without a substantial presence in developed markets like the US and EU. These markets offer assets and access that are distinct from emerging markets. India-US deals have ample headroom for growth. UK deals offer a “comfort zone” for some Indian corporates. Turning to Asia, there is interest from Indian corporates but opportunities and deal sizes may be relatively small in the near term. In terms of inbound M&A, we have seen sustained interest from Japan. Many Japanese corporates are seeking growth opportunities overseas and are becoming increasingly comfortable doing deals in India.
What are the areas/sectors that generate interest among Indian companies?
From an outbound M&A perspective, we continue to expect activity in natural resources (i.e. oil & gas and metals & mining) and technology (IT services). For inbound M&A, we would probably highlight healthcare, consumer and telecom.
Do you think funding for overseas acquisitions is an area of concern?
Funding for overseas acquisitions is not an area of concern at the moment. The liquidity pool and funding options for Indian corporate, in general, and for M&A have expanded. Indian equity markets have performed well, providing various fund raising opportunities, including the issuance of innovative hybrid securities. The rupee bond market, while still at a relatively nascent stage, has deepened. In January 2009, Citi helped ONGC Videsh raise over $1 billion in the domestic commercial paper market to fund its acquisition of Imperial plc. Indian banks have stepped up their lending activity as well. In January 2010, SBI provided a loan of more than $1 billion to GTL Infrastructure to help fund its acquisition of Aircel Towers (which was structured as an asset purchase). And leveraged loans are available especially for the right deal and the right credit/structure.
Do you think the ‘bread and butter’ midmarket deals would be the flavor of the coming year?
We cannot expect a Bharti-Zain Africa or a Vedanta-Cairn deal every year. There are underlying strategic trends that lead to big ticket deals. Having said this, big ticket deals are back in India–2010 has witnessed the highest number of $1 billion+ deals ever (12 vs 11 in 2007). Large deals may continue to skew India M&A volumes but ultimately the ‘bread and butter’ for mature M&A markets is mid-market deals. We can expect continued momentum in mid-market M&A in India. The interesting thing is, unlike in 2007, a $500-million deal is not as big today because average deal sizes in India have increased.
How do you view the increased competition in the M&A advisory space?
There is a lot of competition in India M&A. The shape and tone of this competition has changed frequently in the last 4-5 years along with the evolution of the market. We feel proud that Citi is the only M&A advisor to rank among the Top 5 every year since 2007. In our view, this consistent leadership is an important differentiator as competition intensifies in the Indian M&A market.
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