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October 30, 2008

"M&A landscape to alter significantly"

Moneycontrol.com has a video interview with Ashok Wadhwa, MD of Ambit and Sumanth Sinha, COO, Suzlon Energy, on the drying up of deal activity. Both panelists agreed that more transactions that are still on the table are likely to get renegotiated on account of falling valuations and the derailing of the financing plans for the deals.
Wadhwa: Pure-cash buyout transactions will not happen for a period of time (in significant numbers or value) because the cash for making these transactions happen is just not available. But I do see this as an opportunity for people to consolidate.

...Those who have money will be able to get bargain deals without question and therefore our advice to all our clients at this point of time is: keep your cash tight for a three-six month period. You will really get outstanding value, probably even better than what you have today in but even in the interim, there will be consolidation through stock swaps.

I do see that people have gone and incurred significant amount of costs and one-way to rationalise cost is to actually consolidate your businesses. I do see strategic alliances. I do see stocks swaps. I do see a significant amount of consolidation, which will give rise to a new generation of transactions that won’t be built on the basis of long-term strategic need but which will be built on the basis of short-term need to be able to cut costs, consolidate and bring larger revenue on to the table. There will be transactions that will happen for sure. Also remember that when markets fall the way they do, valuations are getting far more real.

...Sinha: The kind of transaction that we are likely to see in the marketplace is going to be of a distressed nature where a lot of corporates have to sell assets or have to sell parts of their businesses. So, one might find some bottom fishing going on and those sorts of things. I think one will see some private equity transactions taking place. Just before this collapse happened a lot of the private equity funds raised money and therefore are sitting on a tonne of cash. Of course, that cash has to be called and so we have to see what happens when these private equity firms took call that cash. We could see those sorts of transactions. I am not so sure about stock swaps, to be honest, because ultimately a lot of Indian companies are promoter-run and for promoter-run companies, a dilution is always an issue. That is always going to be a concern

Click Here for the transcript of the program.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in