Family-owned conglomerate leaves bankers in the cold in $23b telecom tie-up

Source:Reuters Published: 2017/3/22 18:28:39

India down on dealmakers


One might figure that India's $72 billion in merger and acquisition (M&A) deals in 2016 would have investment bankers scrambling to get into the country. One would be wrong, however. In a recent $23 billion tie-up between India's Idea Cellular and the Indian subsidiary of Vodafone Group, Vodafone hired six outside advisors. Idea Cellular hired none. Rather than bringing in big investment banks for advice on such deals, India's family-owned conglomerates have increasingly been turning to their own in-house teams of advisors. The trend, bankers said, is about bringing back control for Indian tycoons behind some of the country's biggest companies. The result: More and more big banks are pulling out of the country.

An Indian motorist talks on his phone on Monday while driving past a mobile store advertising Vodafone and Idea Cellular, in Mumbai, India. Photo: IC



Investment banking business in India should be enjoying bumper fees after a record year of dealmaking. It's not, and big banks blame in-house teams of advisors who have proliferated as the country's top family-owned conglomerates tighten their grip.

This week's $23 billion tie-up between Idea Cellular, controlled by the Aditya Birla Group, and the Indian business of Vodafone Group, is the latest example of a trend that is squeezing major international investment banks.

Many are struggling in a market that has long been difficult, thanks to messy deals, paltry fees and local challengers.

Bankers had been circling both sides of the telecom mega-merger since it was first mooted late in 2016, when competition in the sector accelerated dramatically. In India, deals worth more than $1 billion are rare.

In the event, Vodafone hired six advisors: Morgan Stanley, Robey Warshaw, Bank of America Merrill Lynch, Kotak Investment Banking, Rothschild and UBS.

Idea hired none.

Instead of tapping bankers, the Aditya Birla Group relied on their in-house team, which includes Saurabh Agrawal, a former South Asia head of corporate finance at Standard Chartered, whom it hired in 2016 as head of corporate strategy, and former Morgan Stanley banker Ashish Adukia, who joined nearly three years ago.

Earlier this year, it also hired Ankur Dalwani, a former managing director at Jefferies in India, according to a source familiar with the move.

"Investment banking is monthly tracking of revenue that you've made, investment banking in corporate is monthly tracking of ideas that you have generated. That's the difference," Adukia said in an e-mailed comment.

The trend, say bankers, is about bringing back control for Indian tycoons behind some of its biggest companies. One source with direct knowledge of this deal said Birla took a direct role in the deal, assisted by Agrawal.

"In some cases, the company in the middle of a transaction won't even copy the bank advising on the deal when sending mails finalizing the details. It's all about keeping control of each and every decision," said one banker who has worked with big Indian conglomerates, including Birla.

"Increasingly you will see the large companies roping in external advisors only in those cases where they can't bridge the gap. It will mainly involve the markets where they have no presence or no knowledge."

Doing it yourself

Birla and Idea did not immediately respond to requests for comment on the decision to leave out advisors, although one separate source familiar with the deal said the company felt its team to be "adequately equipped."

Elsewhere in India's corporate landscape, high-profile banker appointments have proliferated.

Bank of America dealmaker Ankur Verma joined Tata Group's holding company in February. A Tata spokesman said Verma will have diverse responsibilities.

Former RBS and CIMB banker Viral Gathani in 2016 joined Vedanta Resources as head of corporate finance strategy.

"The financial sector's position in the global economy is being somewhat curtailed following the various financial crises that we have seen, and the resultant increased regulations on the sector," Gathani said, in response to a query on his move.

Large Western companies also assemble in-house M&A experts, but they mostly continue to use external advisors while executing large takeovers, and in-house teams in the US and Europe tend to be more modest in size.

Asia, led by China and increasingly India, is challenging that order.

The pain of losing top talent and fees is acutely felt in markets like India, already one of the industry's toughest regions, where many have pulled back or out altogether.

Compliance demands are rising and competition for talent is increasing, but fees are going in the opposite direction.

Indian companies struck a record $72 billion in M&A deals in 2016, doubling from the previous year. However, total fees for investment banking, including M&A, debt and equity, declined to $463 million in 2016 from $491 million a year ago, and were sharply lower than $682 million in 2014.

Bankers said many Indian companies no longer wanted deal-specific advisory services, but were looking for advice across due diligence, M&A, debt and equity raising, and did not want to deal with multiple banks for corporate finance services.


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