Strong lo­cal part­ner­ships cru­cial to suc­ceed in In­dia, China”

Business Today - - CONTENTS - IN­TER­VIEW/ Alexan­dre de Roth­schild

Roth­schild & Co. has been in In­dia since the mid90s, ac­tively par­tic­i­pat­ing in the na­tion’s growth story. One of its big­gest contributions was ad­vis­ing the De­part­ment of Telecom­mu­ni­ca­tions on its spec­trum sales, in­clud­ing the first 3G spec­trum auc­tion in 2010. Of late, it has ad­vised Mahindra & Mahindra on ac­quir­ing Pin­in­fa­rina from 14 Ital­ian banks, han­dled In­tas Phar­ma­ceu­ti­cals’ and Ac­cord’s £603 mil­lion ac­qui­si­tion of Ac­tavis from Teva, and fur­ther ad­vised the con­sor­tium of In­dian Oil Cor­po­ra­tion, Oil In­dia and Bharat PetroRe­sources on ac­quir­ing 29.9 per cent stake in Ros­neft-run Taas-Yuryakh oil and gas project and the $2 bil­lion ac­qui­si­tion of 23.9 per cent eq­uity in Vankor from Ros­neft. It also ad­vised on United Spir­its’ £430 mil­lion sale of Whyte & Mackay to Em­per­ador. Busi­ness To­day’s Ra­jeev Dubey talked to the in­vest­ment bank and ad­vi­sory group’s deputy chair­man and heir ap­par­ent Alexan­dre de Roth­schild on the global eco­nomic land­scape and its rel­e­vance for In­dia. Here are the edited ex­cerpts.

Which way is the global in­vest­ment wind blow­ing this year, given the global eco­nomic un­cer­tain­ties in Europe and China, while the US re­cu­per­ates?

The year 2016 has been full of un­cer­tain­ties and sur­prises. Who would have pre­dicted Brexit or Trump? What is a bit of a para­dox is that even in this un­cer­tain en­vi­ron­ment, there has been an ex­tremely high level of ac­tiv­ity. Our main busi­ness is merger and ac­qui­si­tion (M&A) and fi­nanc­ing ad­vi­sory. And 2016 will prob­a­bly be our best year ever in terms of ad­vis­ing on a num­ber of trans­ac­tions through­out the world. Then there are a lot of economies, which are not ex­pe­ri­enc­ing a high level of growth, such as Europe. A way to ad­dress this is to be ac­quis­i­tive. That’s a trend we have been ob­serv­ing.

In the US, when you have large deals hap­pen­ing, it gives mo­men­tum to the mid-mar­ket. In 2017, we may see the level of 2016 di­min­ish­ing a lit­tle. But we have seen the be­gin­ning of the year, which has been very active.

France, where we are legally head­quar­tered, has seen two ma­jor M&A deals in the first weeks of Jan­uary. So there’s no sign of a drop. If you look at the num­bers in a gran­u­lar man­ner, there could have been signs of a bit of soft­en­ing dur­ing the same time last year.

What about the fund flow?

It’s dif­fi­cult to iden­tify a par­tic­u­lar pat­tern. You see in­ter­est in cer­tain sec­tors and clearly, in­vestors who are in­vest­ing in Europe are more in­ter­ested in ser­vices busi­ness than in heavy in­dus­tries.

What's the in­vest­ment trend for Asian busi­nesses, es­pe­cially in China and In­dia?

You have cy­cles. In­vestors look at China and In­dia as places where you must have a pres­ence if you are op­er­at­ing a global busi­ness. But pick­ing the right mo­ment to go into those mar­kets is al­ways very dif­fi­cult. We have seen many com­pa­nies who want to go to China and we rec­om­mend them to go with a part­ner most of the times. The same can be said about In­dia. Learn­ing about the mar­ket by team­ing up or by es­tab­lish­ing a joint ven­ture with a strong lo­cal busi­ness is the right thing to do.

But there are waves. China, at the mo­ment, is very ea­ger [to bet] on Euro­pean as­sets. Also, in the UK, there is a win­dow of op­por­tu­nity with the pound weak­en­ing due to Brexit. What we have ob­served in our deal­ings with In­dian com­pa­nies is there is an emo­tional or his­tor­i­cal tie with the UK that prob­a­bly makes it the pre­ferred des­ti­na­tion for In­dian firms.

Is there a change or a pat­tern re­gard­ing in­bound in­vest­ments in In­dia and China?

If you look at In­dia, there’s cer­tainly a great busi­ness mo­men­tum, which makes it more at­trac­tive than it was a cou­ple of years ago. We would say In­dia is a phe­nom­e­nal coun­try in terms of en­tre­pre­neur­ial op­por­tu­ni­ties and cre­ation of tal­ent across sev­eral in­dus­tries. But there was also a feel­ing that the frame­work was prob­a­bly a lit­tle frag­ile and, there­fore, for­eign­ers en­ter­ing the In­dia mar­ket should be more cau­tious. That’s go­ing in the right di­rec­tion now; the frame­work has strength­ened. Cer­tainly, the bot­tom re­mains as strong and is grow­ing even stronger.

In China, there are ob­vi­ously some win­dows of con­cern. You hear that the GDP num­bers are soft­en­ing. But we ad­vise peo­ple to al­ways have a long-term view.

The temp­ta­tion is al­ways to com­pare one with the other, but one needs to be cau­tious and should not gen­er­alise. In­dia is cer­tainly tick­ing the right boxes from the in­vestors’ point of view.

How does the group view the world econ­omy now?

We tend to have a mi­cro approach to things. Europe, where we have the strong­est foot­print, is clearly a mar­ket where, if you look at the macro ba­sis, you could worry. There’s lit­tle growth, there’s lit­tle prospect of growth in­creas­ing in a ma­jor man­ner. If you look at the mi­cro ba­sis, you have phe­nom­e­nal com­pa­nies who prob­a­bly have head­quar­ters in Europe, but who have an in­ter­na­tional di­men­sion. You have a mar­ket for 500 mil­lion so­phis­ti­cated con­sumers, which is a nice place to start, and you have cham­pi­ons across all sec­tors.

If you are able to nav­i­gate and pick in­di­vid­ual win­ners, you can do very well in Europe. But for that, you have to have sourc­ing ca­pa­bil­i­ties. In other ways, you could say I wouldn’t rec­om­mend you to buy the in­dex. But if you are do­ing a pick-and-choose ex­er­cise identifying sec­tors and within those sec­tors, cer­tain seg­ments, which have growth pat­terns, you can do very well.

The US is prob­a­bly too early to say. There is sur­prise for ev­ery­one and there is no way you ex­pect the mar­kets to re­act that way. But if you an­a­lyse the rea­son why they re­acted that way, prob­a­bly they are right. Pos­si­bly, all the in­di­ca­tions of more in­fra­struc­ture spend, some de­gree of lib­er­al­i­sa­tion and pro­duc­tion are a boost for the econ­omy.

What will be the global im­pact of firm­ing com­mod­ity


and oil prices?

In com­modi­ties space, the vi­o­lence of the move­ment has caught many in­dus­tries by sur­prise. But com­ing back to a phase of sta­bil­ity is a good thing. Oil has been very volatile and has se­ri­ously im­pacted the com­pa­nies that have oil as an un­der­ly­ing com­mod­ity and also the coun­tries that are ex­tremely de­pen­dent on oil. But it seems to have sta­bilised again in the neigh­bour­hoods to al­low the flow of busi­ness to re­sume.

You did the tele­com auc­tions for In­dia in the past. But auc­tions as a way to dis­cover prices have not de­liv­ered the best re­sults. Could there be other op­tions?

It may seem a bit tainted be­cause we do a lot of auc­tions. But it’s a fairly trans­par­ent and fair method of putting some­thing on sale. It’s a way to eval­u­ate and bench­mark the in­ter­est, to as­sess the cred­i­bil­ity of that in­ter­est – not only re­gard­ing prices but also re­gard­ing the con­di­tion. We find it a fairly demo­cratic and trans­par­ent process.

There was a phase in global M&A when very large – but few – ac­qui­si­tions hap­pened. Over the past cou­ple of years, though deals are smaller, the num­bers have in­creased. Where are we now?

There is al­ways a lag. When you have large-cap deals, you will see the mid-mar­ket fol­low­ing, but it fol­lows a few years later. In a way, M&A is cycli­cal. We had our pre­vi­ous record in 2007. And 2016 would be an­other one. It can be swings of 20-30 per cent rev­enue move­ments.

Hedge funds have prob­a­bly faced a tougher test than pri­vate eq­uity (PE). PE is a lit­tle health­ier and, there­fore, we have not seen the PE mar­ket be­ing shaken so much. In­vestors seem to be back­ing good PE man­agers and peo­ple who have fundrais­ing ob­jec­tives seem to be lead­ing.

What sec­tor will see great trac­tion this year?

It’s pretty broad. Tech­nol­ogy is at­tract­ing a lot of [money] flow not only from tech-spe­cific deals, but also from non­tech in­dus­tries who are fac­ing pos­si­ble dis­rup­tion and are mak­ing ac­qui­si­tions as a way to learn. These are not nec­es­sar­ily very large deals but it's one way of en­ter­ing the tech­nol­ogy space in gen­eral. Health­care, ed­u­ca­tion and con­sumer-fac­ing busi­nesses are also of in­ter­est.

And the key sec­tor in In­dia for in­bound in­vest­ments?

It’s dif­fi­cult to pick one. Health­care, ser­vices busi­ness and busi­nesses that are fu­elled by nat­u­ral growth on the back of pos­i­tive de­mo­graphic trends are good sec­tors. There is gen­eral ex­cite­ment for In­dia at the mo­ment, which is not some­thing short term but some­thing real, which we see among all for­eign in­vestors.

Look­ing at a two-three year trend, how is the in­vestor in­ter­est for In­dia, specif­i­cally from Euro­pean busi­nesses? What about In­dian in­ter­ests in Europe?

For Euro­pean in­vestors, it’s be­com­ing real, es­pe­cially in the con­text of a strength­en­ing gen­eral frame­work. The question is: What’s the best way to make an in­vest­ment? Should it be done by ac­quir­ing a com­pany or form­ing a joint ven­ture or should one do it step by step? But the will­ing­ness is ab­so­lutely present, es­pe­cially when the al­ter­na­tives are fewer. The gen­eral sense is that the gov­ern­ment sees busi­ness as part of a so­lu­tion and not part of the prob­lem. And it gen­uinely as­pires to make things sim­pler and more busi­ness-friendly for the busi­nesses that want to op­er­ate here. The gov­ern­ment says this re­peat­edly and there are ev­i­dences that it is in­tend­ing and as­pir­ing to make that real. Chang­ing any coun­try is dif­fi­cult and chang­ing In­dia – which is 20 coun­tries put to­gether due to chang­ing lan­guages and cul­tures – is a chal­lenge. But the Bri­tish and Euro­pean busi­nesses think that the in­tent is real and so far, the avail­able ev­i­dence shows that things are mov­ing in the right di­rec­tion.

As for In­dian in­vestors’ in­ter­est in Europe, there is an ap­petite for in­ter­na­tion­al­is­ing the busi­nesses for di­ver­si­fi­ca­tion pur­poses. There­fore, healthy com­pa­nies in In­dia are look­ing at Europe with keen in­ter­est. ~

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