Chaitanya Deshpande spent the first 14 years of his career at fast-moving consumer goods marketer Marico, in budgeting, planning and in the treasury. Then one fine day, he got his big break when his CEO Harsh Mariwala causally remarked about the need to double turnover in the next four years. One way to do that would be to foray into international markets—in less developed ones—and make acquisitions there.
|Sumant Sinha, Chief Operating Officer, Suzlon Energy|
|KEY ROLES IN THE PAST: CEO of Aditya Birla Retail; before that, the group CFO at Aditya Birla Group, where he initiated policies and procedures for capital allocation among group companies. Prior to Aditya Birla Group, he was a senior banker at Citibank and ING Barings in New York, where he advised governments and corporates on fund-raising.|
|LANDMARK TRANSACTION: Aditya Birla Group’s acquisition of Novelis.|
Deshpande and his team identified two countries and potential takeover targets there. By 2007, Marico had made two acquisitions in Egypt and another in South Africa, with more than a little help from the 45-year-old Head (Mergers & Acquisitions and Investor Relations).
Deshpande is just one of a rapidly-growing tribe of in-house M&A mavens who are at the forefront of their company’s acquisition game plan. Right from identifying targets to researching them, negotiating the transaction and concluding it, the bankers within do it all.
It isn’t as if they don’t rope in professional investment banks—a few actually don’t, preferring to wrap up deals themselves— but what’s significant is that more and more CEOs are realising that when M&A (both outbound and domestic) is a growth imperative and therefore a relentless exercise, having a team next to the corner room is vital. “Having a dedicated M&A team ensures that a company has better understanding about the strategic benefits—as well as the challenges —of an acquisition,” says Harsh Vardhan, Partner Director at Boston Consulting Group.
Central M&A Divisions
Conglomerates such as Reliance, the Tatas and Adtiya Birla Group have over the years put in place central M&A divisions. At many other corporations, the CFO often plays the role of leading M&A transactions. Anil Chanana, CFO at HCL Technologies, has been involved in 20 transactions (including acquisitions, equity-based joint ventures and divestments) ever since he joined the company in 1985.
When some of these in-house advisors come armed with stints at investment banks, it’s a win-win situation for company managements. Consider Lanco Infrastructure, which hired J. Suresh Kumar, a banker with JM Financial for 13 years, as CFO almost three years ago. Even as he nurtured a team of 13 for the corporate and project finance department, Kumar’s investment banking experience helped his company raise $150 million through qualified institutional placements (QIPs).
|Chaitanya Deshpande, Head (M&A & Investor Relations), Marico|
|KEY ROLES IN THE PAST: After spending almost two decades with the company in various functions such as MIS, budgeting and treasury operations, he steered the company’s entry into markets such as Egypt and South Africa through local acquisitions.|
|LANDMARK TRANSACTION: Marico’s entry into South African markets.|
This was at a time when investor appetite was poor and bankers were putting pressure on companies to either delay or withdraw. “However, we needed capital for expansion, so we convinced our bankers and investors to push through the fund-raising,” says Kumar, who personally met with and convinced investors about his company’s prospects.
Another corporate honcho who has been on the other side of the fence is Sumant Sinha, today COO at Suzlon Energy. Having done stints on Wall Street with Citicorp Securities and ING Barings, Sinha explains the delicate distinction between a banker on The Street and the one at the HQ: The former can get a mandate, execute it, and then move on; the latter has to live with the mandate and ensure that value is created for shareholders over the long term. At the Aditya Birla Group, where Sinha did a stint after New York and before Suzlon, Sinha was instrumental in conceiving and planning the $6-billion acquisition of Novelis in 2007. The transaction, he says, was debated internally for six months; and only at the time of arranging funds did the group seek out an investment banker.
In a select few cases, the promoters themselves are their best advisors when it comes to M&A. The Raju Shroff-promoted United Phosphorus, for instance, has done 16 acquisitions in the past five years. The men behind the M&A blitz: Shroff himself, along with his son Jai Shroff and Arun Ashar, Director (Finance). The Shroffs are known to be regulars at overseas industry conferences, where they get to know about companies that could make attractive buys. Similarly, Dilip Shanghvi, Chairman, Sun Pharma, is the man who drives the M&A activity (and the team), which includes 12 acquisitions in the past eight years.
|N. Sivaraman, Executive Vice President (Financial Services), L&T|
|KEY ROLES IN THE PAST: Having spent 27 years in various functions such as audit, treasury and accounts, Sivaraman took charge of the M&A cell in 2000. The group’s strategy to exit from cement business, divest non-core businesses and minority stakes in other companies was done under the guidance of his team.|
|LANDMARK TRANSACTION: Strategic divestment of the cement business.|
Mimimal Help from I-banks
In-house dealmakers take pride in taking minimal—if not zero—help from I-banks. As 51-year-old N. Sivaraman, Executive Vice President (Financial Services), Larsen & Toubro (L&T), puts it: “At the end of day, we will be facing the investors regularly so we need to tell our growth story in a credible way. It can’t be substituted by an outside banker at any cost.”
Sivaraman’s team led the group’s strategic exit from cement nine years ago, and has led fund-raising initiatives through GDRs, bonds and equity from time to time. The M&A division works with designated executives in each of the business verticals who give feedback on which companies can be a strategic divestment for that vertical (see L&T’s Shopping Spree, page 64). The M&A division then gets working on the deal and if it’s a large one, it invites outside bankers for advice on industry dynamics or industry valuations.
So, for instance, when L&T pitched for buying out Satyam Computers in March, Citigroup was brought in as advisor. Recently, L&T exited ready-mix concrete (RMC), which was sold to Lafarge for Rs 1,500 crore, and has put up for sale the fuel dispenser business; Sivaraman was negotiating with potential buyers at the time of writing.
Although investment bankers will invariably suffer from a complex of not knowing a company as well as those who work for it, their role can never be undermined. Their relationships, network—particularly those of the global banks—and researchoriented teams will ensure that they can never be ignored. That’s why investment bankers like Ranu Vohra, Managing Director & CEO, Avendus Capital, a full-fledged financial services firm, don’t look at in-house bankers as rivals or competitors. “We provide complementary services to clients,” explains Vohra.
Why India Inc. Wants Its Own Dealmakers
|• To ensure more accountability as investment bankers’ mandates end once deal is cut.|
|• Research done in-house on potential targets is considered more credible and in-depth.|
|• Can play a big role in integration once the deal is cut.|
|• To ensure confidentiality of strategic and business plans.|
Sivaraman of L&T feels that outside bankers have inherent limitations as they have limited inputs of the internal needs of a client. Also, most banks work on multiple deals at the same time and have limited time to devote to one company. The companies have to be careful about how much information they can share with their advisors. That’s where an in-house M&A team can help, by being an interface between the business units and the outside world. Deshpande of Marico sums up this role as that of a sutradhar (or an anchor).
K.R. Lakshminarayana, Chief Strategy and M&A Officer (IT Businesses), Wipro, explains, the job of this sutradhar comes with its own challenges. “You have to be a two-way salesman— on the one hand, you are selling the idea internally and on the other you are selling yourself to the target,” he adds. The Wipro M&A chief compares an M&A transaction to a typical Indian arranged marriage: The elders (read the board) do the matchmaking; after the hype, fanfare and celebrations (of the marriage), there is a honeymoon period. The tough work begins after that, once the spotlight has faded—of living happily ever after.
Additional reporting by Rahul Sachitanand & Manu Kaushik