Leif Zierz, global head, Transactions & Restructuring, KPMG, talks to Shailesh Menon on cross-border merger and acquisition dealsCross-border M&A had declined after the Lehman crisis. How’s the situation now? We’re seeing a rise in transaction activity across the globe. The current uptick in this is pursuant to restricted financing options and recession in many parts of the world. Some economies like those in northern Europe have recovered quickly. There are cross-border deals happening now. I’d like to say the interest in M&A deals is at pre-crisis levels.But what has changed fundamentally? Some uncertainties are still there. The euro zone crisis comes back to haunt us time and again. But the transaction market is holding up well. If you look at it from a corporate angle, they have had time to reduce cost, make their balance sheet healthy, reduce debt and shore up liquidity. What has now come up is a big need to do strategic transactions (for major players), and that is happening now. A big part of the transaction market, apart from strategic players, is private equity (PE). Till last year, PE was finding it difficult to do deals, but then there’s a need for them to exit existing investments and redeploy funds. So both strategic investors and PE have begun to make bold moves.That exuberance of the previous bull market years is missing, I suppose…Now, companies need to justify what they are doing and show long-term value in it. There’s pressure from capital markets, shareholders and boards (of companies) to do deals that are more of a ‘strategic fit’ in nature. Firms are more focused on their businesses and core strengths. That change in mindset and professionalism has been created by the crisis. On the funding side, low-quality deals and players may not get funds for deals that are difficult to explain.Have Indian companies lost faith in overseas acquisitions?In 2007, India witnessed a lot of irrational deals; such exuberance does not exist anymore. Outbound deals are done for strategic reasons, only on a need-basis. In the previous years, some of these large Indian firms did not even understand the markets they forayed in; their culture. But now they’re careful. Some of those deals struck in 2007 did well because they were strategic in nature and were simple. These firms did not change much within the acquiring firms — like changing management. Post-merger integration has now become a pre-deal issue for both PE and strategic investors. (This story was published in BW | Businessworld Issue Dated 27-07-2015)
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The securities and Exchange Board of India (Sebi) has come up a skeletal guideline for listing startups on the bourses. Now Indian entrepreneurs need not go too far to startup friendly shores of Hong Kong, London or New York; they can just raise funds in Mumbai. But would it be wise to invest in startups? Think about it. This week, Elon Musk’s SpaceX’s rocket failed to launch for a third time. The company has been funded for 13 years with no revenues in sight. There is high risk in “listing” ideas. That said, without start-ups there are no ideas.
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ETailers have emerged as the largest spenders on television, print and the Internet. They account for a sizeable chunk of the country’s total ad-spend market of Rs 49,000 crore, including the Rs 3,500-crore digital spend, according to advertising giant GroupM.India’s top three eTailers -- Amazon India, Flipkart and Snapdeal – between them account for 50 per cent of the total digital ad spend, and this expenditure is estimated to grow 37 per cent in 2015.The trio’s combined annual ad budget for print and television is worth more than Rs 550 crore. Together with their online spend, the individual spend of each on advertising and marketing activity touches nearly Rs 1,000 crore every year. Clearly, it shows up in their losses.There is little these eTailers can do to curb such expenditure though. After all, theirs is a fledgling industry and it is necessary for them to play the visibility game to acquire customers. However, this is also where the levee breaks when the cash dries up.Thanks to the high cost on account of heavy discounting and reverse logistics, the eTailing companies are required to continuously raise money in their quest to acquire customers. Retail, in expansion mode, is a cash burning business and on average it takes 10 years to generate cash from operations.While the 10-year rule may not apply to Amazon India (its parent Amazon has a 20-year history), the home-grown retailers like Snapdeal and Flipkart have no option but to go on raising cash from investors. But to what extent can these eTailers go on raising cash and for how long?BW|Businessworld believes that these businesses will be sold to large private equity players or a hedge fund, like Bridgewater or JP Morgan, who can keep them alive. However, financial experts believe that with the SEBI coming up with new preliminary guidelines for listing, the first e-commerce entity to tap the bourses will be Snapdeal because the company is structured in India. The listing itself will depend on final guidelines, which will be out by the end of the year.What about Flipkart? The company will have to list abroad because its financial structure has been created in Singapore. The bet is on Reliance’s broadband play and the burgeoning sales of smartphones – according to Gartner, there will be more than 100 million by 2018 – which will help add a million new customers.Globally, online sales are still 20 per cent of the retail market. In India, online sales account for less than 1 per cent of the Rs 3,00,000 crore market, although they are growing at more than 100 per cent in categories such as books and electronics. The hunt for customers has to go on; e-commerce companies have to triple their customer base from the 36 million at present. If Snapdeal and Flipkart have to survive, they need to go out there and get long-term capital.— Vishal S. Krishna(This story was published in BW | Businessworld Issue Dated 27-07-2015)
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A new milk and dairy producing company, Prabhat Dairy, is coming up, writes Haider Ali KhanPrabhat Dairy, an integrated milk and dairy producing company, situated in Ahmednagar district of Maharashtra is expected to commence commercial production in the fiscal year 2016.It has an automated production facilities at Shrirampur in Ahmednagar and in Navi Mumbai, Maharashtra. It has an aggregate milk processing capacity of 1.5 million litres per day.Vivek Nirmal, joint managing director of Prabhat dairy said, “Our facilities are in proximity to our procurement region and target market. And we have in-built capacities to expand retail products and introduce high growth products like mozzarella cheese and paneer.”Cheese is the fastest growing segment, it grew by 20 per cent by CAGR to reach Rs 50 to Rs 55 billion in the year 2014 from Rs 26 billion in 2010. The main reason is the urban population which is consuming 80 to 90 per cent of cheese in India.He also added that, “We will continue increasing our manufacturing capacities for our existing dairy products especially for high margin products. And we believe the farmers must be our partners in progress.”According to CRISIL report, the processed milk segment recorded 15 per cent CAGR reaching Rs 2170 billion in fiscal 2014 from Rs 1250 billion in 2010. Milk prices are also expected to rise by 7 to 8 per cent CAGR over next three years due to increase in fodder prices. It will reach up to Rs 3100 billion by fiscal 2017.Prabhat dairy is leading suppliers in India for consumer products companies like Abbott Healthcare for baby milk, sweetened condensed milk for Mondelez India Foods. It has various other institutional customers like Britannia and Mother Dairy.It has received several quality certifications from FSSAI, AGMARK and Halal. It has been certified as 22000:2005 company for pasteurised milk, flavoured milk and ghee. It won ‘CII National Award for Food Safety’ in 2014 by Confederation of Indian Industry.Prabhat dairy has a network of 75 thousand marginalized and land less farmers and have a direct milk procurement system.
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Jubilant Performance Cars, a subsidiary of Jubilant Motor Works, has been appointed as Porsche India's dealer for Mumbai. The range of Porsche models on sale in India includes the iconic 911 range, Boxster and Cayman mid-engine two-seaters, Panamera sports sedan, Macan and Cayenne SUVs.Jubilant Performance Cars will take over the operations of Porsche Centre Mumbai with immediate effect. The mandate includes the sales and servicing of Porsche's range of two-door and four-door sports cars in the region. "Porsche is a legendary brand and the name adorns the finest sports cars in the world. We look forward to working with Porsche India to strengthen its presence further," said K. Subramanian, director of Jubilant Motor Works. The sales operations will be conducted from the existing state-of-the-art Porsche Centre Mumbai showroom at Prabhadevi, while a Porsche Service Centre has been set up in Sewri to attend to the immediate After Sales requirements of Porsche cars."With this partnership, we aim to offer our customers an unparalleled purchase and ownership experience," said Anil Reddi, director of Porsche India.Jubilant MotorWorks, which operates luxury automotive retail businesses in southern and western India, is a part of the Jubilant Bhartia Group that has business interests in a range of sectors such as pharmaceuticals and life sciences, food services, oil and gas, agriculture, performance polymers and consulting services in aerospace and oilfield industries.
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Chinese stocks rose on Monday after Beijing unleashed an unprecedented series of support measures over the weekend to stave off the prospect of a full-blown crash that was threatening to destabilise the world's second-biggest economy. In an extraordinary weekend of policy moves, brokerages and fund managers vowed to buy massive amounts of stocks, helped by China's state-backed margin finance company, which in turn would be aided by a direct line of liquidity from the central bank. The CSI300 index of the largest listed companies in Shanghai and Shenzhen was up 2.5 percent, while the Shanghai Composite Index had gained 2.2 percent, pulling back after an initial burst of euphoria sent them up around 8 percent when trading began. Oliver Barron, China policy research analyst at NSBO, said it wasn't just faith in the markets at stake after investors had ignored official measures to prop up the market as equity indexes slid around 12 percent last week. "After the market continued to fall despite myriad support measures, the government reached peak panic mode and must have worried that investors would not only lose confidence in the markets, but in the government itself," he said. The rapid decline of China's previously booming stock market, which by the end of last week had fallen around 30 percent from a mid-June peak, had become a major headache for President Xi Jinping and China's top leaders, who were already struggling to avert a sharper economic slowdown. In response, China has orchestrated a halt to new share issues, with dozens of firms scrapping their IPO plans in separate but similarly worded statements over the weekend, in a tactic authorities have used before to support markets. Rinbows Follow Rain?China Vanke Co Ltd, the country's largest developer, said in a statement to the Hong Kong Stock Exchange on Monday it planned to repurchase up to 10 billion yuan ($1.6 billion) worth of its domestic shares to protect investor interests. China's state media rolled in behind the official moves with supportive reports and commentaries. "Rainbows always appear after rains," said an editorial by the People's Daily, the mouthpiece of the ruling Communist Party on Monday. "(China has) the conditions, ability and confidence in maintaining capital market stability," the newspaper said. Monday's gains were focused on blue chips, the explicit target of the stabilisation fund, with the ChiNext growth board, home to some of China's giddiest small-cap valuations, falling 3.8 percent. "Whether the blue chips will calm the small caps, or the small caps will continue to unsettle the rest of the market remains to be seen," wrote Hong Hao, chief strategist of BOCOM International. China stocks had more than doubled over the past year, despite a cooling economy and weakening corporate earnings, resulting in a market that even China's bullish securities regulators eventually admitted had become too frothy. But the slide that began in mid-June, and which the China Securities Regulatory Commission initially tried to downplay as a "healthy" correction, quickly showed signs of getting out of hand. A surprise interest-rate cut by the central bank at the end of June, relaxations in margin trading and other "stability measures" did little to calm investors, many of whom have borrowed heavily to play the stock market. Still ExpensiveIn a series of initial announcements on Saturday, China's top brokerages pledged to collectively buy at least 120 billion yuan ($19.3 billion) of shares to help steady the market, and said they would not sell while the Shanghai Composite Index remained below 4,500, a level last seen on June 25. The China Mutual Fund Association said 25 fund companies also pledged on Saturday to buy shares. Another 69 fund firms said on Sunday they would do the same. In addition, 28 companies that had been approved to launch IPOs announced they had suspended their plans. The U-turn is consistent with past IPO freezes in China when share markets were falling sharply, though they are usually spun as spontaneous company decisions, not as government directives. On Sunday, China state-owned investment company Central Huijin said it had recently been buying exchange-traded funds and would keep doing so. The aim was to signal to China's army of retail investors, who conduct around 85 percent of share transactions, that the government is standing behind the market. Analysts cautioned, however, that the latest policy moves may only bring short-term relief. "The government measures are only aimed at stabilising the market, and providing an exit for those who want to get out," said Liu Li, analyst at Shanxi Securities Co. "Theoretically, the central bank's money is unlimited, but you cannot expect the government to use public money to buy shares which are still expensive, such as ChiNext shares." (Reuters)
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Indian shares and bonds fell on Monday after Greeks overwhelmingly rejected conditions of a rescue package from creditors, raising fears foreign investors would ride out the uncertainty by paring down riskier holdings in emerging markets. The resounding 'no' vote threw the future of Greece's euro zone membership into further doubt and deepened a standoff with lenders. The rupee weakened to 63.5600/57 per dollar compared to its previous close of 63.44/45 at 0913 India time. The NSE index fell more than 1 percent, while the 10-year benchmark bond yield was up 1 basis point, after rising as much as 3 basis points earlier.
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Sutanu Guru wonders if the Ambani-Nusli Wadia war resembles the one between Modi and RahulOn July 6, 2003, Mumbai was being lashed with torrential rains. But that did not stop literally the who is who of India gathering to pay tribute to the most legendary entrepreneur of post independent India, Dhirubhai Ambani who passed away on July 6, 2002. President A.P. J Abdul Kalam delivered the keynote address. Also present to pay tribute were Maharashtra Chief Minister Sushil Kumar Shinde, Gujarat Chief Minister Narendra Modi, Uttar Pradesh Chief Minister Mulayam Singh Yadav, Madhya Pradesh Chief Minister Digvijay Singh and a host of politicians and industrialists. But the media attention that day was on the Union Telecom Minister Arun Shourie and what he would say. Shourie surprised many and shocked a few that day by saying: "I first learnt about him (Ambani) through the articles of my colleague S. Gurumurthy. The point of most of these articles was that Reliance had done something in excess of what had been licensed. It was producing in excess of that capacity...Most would say today that those restrictions and conditions should not have been there in the first place, that they are what held the country back. And that the Dhirubhais are to be thanked not once but twice over: they set up world class companies and facilities in spite of those regulations and thus laid the foundations for the growth all of us claim credit for today...second, by exceeding these limits in which these restrictions sought to impound them, they helped the case for scrapping those regulations, they helped make the case for reforms". Ambani had passed away on July, 6, 2002.Shourie's unabashed praise for Dhirubhai Ambani was indeed a surprise for many gathered that evening. But no one was surprised by the absence of one man that day: Nusli Wadia. For more than two decades, Ambani and Wadia had fought a bitter battle that habitually spilled over to the media and government. For a long time during this no holds barred battle, Arun Shourie had willy nilly become an ally of Nusli Wadia as a journalist and the editor of The Indian Express. In 1986, a group of brokers in Mumbai banded together to crash the stock price of Ambani's Reliance Industries even as The Indian Express launched a relentless campaign against him and his company. There was a time when Ambani family insiders admit that the Ambani Empire was teetering on the verge of collapse and things never looked bleaker when Ambani suffered a stroke. Movie buffs would be familiar with this stuff thanks to the Mani Ratnam directed film Guru where Abhishek Bachchan plays the role of his life by portraying Dhirubhai Ambani. The Mani Ratnam movie no doubt did a fair job of portraying the life and times of Ambani. But it just about skimmed over the real battle: the one between Nusli Wadia and Dhirubhai Ambani.And this is one big fat juicy war that Indians must read about, for sheer entertainment if not enlightenment. It is a classic war between India and Bharat. To a large extent, it explains why and how a fellow Gujarati like Narendra Modi keeps rising and looks a winner against Rahul Gandhi despite all the early odds being stacked in favor of Rahul.Ambani, like Modi, had a truly humble upbringing. Born to an impoverished school teacher, Ambani, like tens of millions of fellow Indians like him, was destined to a life of lower middle class struggle. In contrast, Nusli Wadia was born with the proverbial golden spoon, the child of Neville and Dina Wadia and the grandson of Mohammed Ali Jinnah, the founder of Pakistan. Incidentally, like Wadia, Rahul inherits a Parsi heritage from his father's side. His grandfather Feroze Gandhi was a Parsi. While Ambani spent his teen years and early youth as an attendant at a petrol pump in Aden, Yemen, Wadia got the best and most expensive of schooling and education. Under ordinary circumstances, the world to which the two belonged were so distant from each other that even an astrologer would have thought twice before predicting that their paths would inevitably cross. But determined to rise above the limitations imposed by his background, Dhirubhai gathered his savings and dreams and came back to Bombay, the city of dreams. His decision to focus on textiles led to the inevitable encounter with Nusli Wadia and the rest, as they say, is history, or folklore or fairy tale, depending on how you look at it.The reader has to bear with some technical detail here. But really, there is no more fascinating story than the war between Ambani and Wadia and the cast of colorful characters that played pivotal roles in this thriller. If it were the United States, there is little doubt that dozens of books would have been written on this. But then this is India where the 'Book' co exists with the oral tradition. By the 1970s, Dhirubhai had become a fairly successful manufacturer of textiles under the Vimal brand name and an importer of Polyester yarn and fibre that were raw materials for synthetic textiles, which were far cheaper than pure cotton fabrics. His company Reliance Industries was incorporated in 1966. In contrast, Bombay Dyeing was founded by Nusli's grandfather Nowrosjee Wadia back in 1879. As Dhirubhai started expanding his wings, he realized two things. The first was that you needed a license from Delhi to manufacture anything; in fact, you needed a license to even manufacture more of what you already made. The more important corollary to this was that nothing could be done unless you kept an army of bureaucrats, fixers and politicians happy in Delhi. This was the heyday of the license permit raj fashioned by Nehru and turned into fine art by Indira Gandhi. The second was that Indian banks and financial institutions simply could not lend him enough money to finance his ambitious projects even if the right levers were pulled.So the first thing that Ambani did was to maximize his "access" to Delhi. He simply outmuscled and outsmarted the established industrial houses when it came to "managing Delhi". Second, he realised that the newly emerging middle class in India had the money to finance his dreams. Reliance went public (sold equity shares to retail investors, the public, literally) in 1977 and Ambani started a love affair with investors that is now the stuff of legend. If you or your parents were fortunate enough to invest Rs 10,000 in Reliance back in 1977, you would be worth crores today. Incidentally, Bombay Dyeing controlled by Nusli Wadia was then a blue chip in the stock market and a part of the Bombay Sensitive Index or Sensex (The 30 most valuable companies of the market become part of the Sensex). It has since long dropped and faded out of the Sensex and it would be a stretch to call Bombay Dyeing a blue chip in contemporary times. Simultaneously, Ambani went on an overdrive in managing Delhi. Whispers had already started about how he could miraculously change policies. When he was an importer of polyester yarn and fibre, import duties were low. When he started manufacturing them, duties went up, making imports costlier than the yarn manufactured by Reliance. But he really entered the big league when he launched his petrochemical ambitions in earnest. He decided to manufacture a petrochemical intermediate called Purified Terepthalic Acid (PTA) that was a raw material to manufacture polyester yarn and fibre. At that time, Bombay Dyeing and the public sector blue chip Indian Petrochemicals Ltd (IPCL) manufactured a rival intermediate called Di Methyl Terepthalic Acid (DMT). War broke out when Ambani obtained the license and set up a plant in record time as Wadia faced a direct challenge to his inherited business Empire. Till then, the hostility between Wadia and Ambani was the stuff of whispers. Soon, it became big news in the media. Things were so bad that even attempted murder allegations were made against people allegedly close to Ambani in the late 1980s. Despite the best efforts of Wadia, and many other "old money" business families, Ambani proved to be unstoppable. He became even more so when the license permit raj was dismantled in 1991. Incidentally, the public sector IPCL was taken over by Reliance during the turn of the century.Some analysts say that comparing the "old" Ambani-Wadia battle with the new Modi-Rahul war is facile. But then, this blog is not a serious attempt at analysis. Thirteen years after Dhirubhai Ambani died, it is just an attempt at putting things in perspective through colourful memories.
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