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To capture a bigger share of the cross-border merger and acquisition business, Kotak Mahindra Capital Company, the investment banking arm of Kotak Mahindra Bank, will expand its footprint into Europe by entering into key alliances with local partners. The bank will mainly focus on deals in four major markets in Europe — Germany, Spain, France and Italy.
“We currently have informal alliances with three or four banks in Europe and are looking at possibly formalising those tie-ups. They are known for technology and India is the market in terms of consumers, so the idea is to match their technology with the market here,” said Sourav Mallik, Head Merger and Acquisitions, Kotak Investment Bank.
On the broad strategy behind the move, Mallik added: “Given that majority of the business would remain cross border for a significant period of time, we had the option of setting up offices in key markets abroad but we felt that would be inefficient. So, we decided to tie up in key geographies with key alliance partners through whom we can meaningfully service our customers.
“For instance, we tied up with SMBC Nikko Securities in Japan and Evercore Partners in the US, UK and Mexico markets. And with the European alliances shaping up, we would have covered 80 per cent of our target market.”
According to Mallik, there is enough market potential to capture in the mid space between the big bulge banks (foreign/MNC banks) and specialised boutique I-banks in India.
“Big bulge banks need to be here since India is part of the overall global puzzle but it is not their bread and butter, and niche boutique I-banking firms in India suffer from the challenge of scalability. This leaves the field open for domestic full-service banks like ours to cash in. It helps to have an integrated coverage strategy with the rest of the group that enables us to offer a larger bouquet of services to a much larger base of customers,” he added.
Moreover, with recent changes in India’s regulatory architecture for M&A, Mallick believes things are moving in the right direction for the business.
Meanwhile, the slowdown in the M&A business in India due to stressed global and domestic macroeconomic factors has seen both the number and value of deals in the first nine months of calendar year 2013 dwindle.
A total of 377 deals amounting to $23.9 billion were reported in the first nine months of 2013, according to data from Grant Thorton’s Dealtracker. This was below the 461 deals accounting for $37.31 billion reported in 2011 and 438 deals amounting to $28.16 billion in 2012.
However, the challenges of growth slowdown, debt stress and regulatory ambiguity notwithstanding, deals around the Indian consumption story and global outsourcing model, pharma, IT and ITeS and industrials would continue to get interest, believes Mallik.
Kotak Mahindra Capital has been on a comeback trail in its annual net profit from Rs 52 crore in 2010-11 to Rs 6 crore in 2011-12 to Rs 17 crore in 2012-13.However, on a quarterly basis, it has seen a net loss of Rs 2 crore for the second quarter ended September this year against a net profit of Rs 4 crore in the year-ago period and in the previous quarter ended June 2013.
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