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BofA Merrill back in reckoning in Indian M&A league
January, 03rd 2011

In April last when Nipun Agarwal of Bank of America Merrill Lynch took GMR Infrastructure on a road show to raise $315 million in share sale, he smelt the next deal. But that would go against the Indian tradition of not parting with assets until it becomes inevitable. That was when the global acquisition fad was rearing its head again, after a two-year hiatus.

The deal was to convince GMR Infrastructure to sell the 50% stake it owned in global utility InterGen BV, within two years of buying it from an AIG-owned fund with a billion-dollar debt.

There were enough obstacles to stall the transaction than enable it, unless the promoters showed a different mettle. They did. With it came the cheers for the company from investors and the return of BofA Merrill into M&A game advisory after a merger forced slowness.

The acquisition debt would have led to a deterioration of GMRIs leverage ratios, which this sale has averted, Shilpa Krishnan and Sumit Kishore of JPMorgan wrote in a report, after the $1.23-billion stake sale to Chinas Huaneng. GMRI had suffered de-rating after this purchase as its image of high-growth Indian infrastructure play had got diluted. Agarwal and his colleague Raj Balakrishnans gamble to do the unthinkable among Indian businessmen paid off.

Sometimes, people take a difficult decision and say that I am going to stick to it even if that is going to cost me, says Balakrishnan , head of M&As at Bank of America Merrill Lynch in India. The main challenge was the price. Peers of InterGen were trading at two-third the valuations at which GMR picked it. And no one is going to exit something at a 35% discount.

BofA Merrill Lynch is back in reckoning in the Indian M&A league with Standard Chartered, Rothschild and British bank Barclays . Mergers and acquisitions topped $70 billion this year, highest ever, led by Bharti Airtels acquisition of Zains Africa business and Vedantas agreement to buy Cairn India. When Indian companies were busy buying, GMR sold InterGen to a Chinese firm.

The question comes to which opportunity should you foc US on, India, or overseas, says Balakrishnan . The answer was fairly obvious and it was loud and clear when we took GMR on the road ahead of the QIP. People said look, we love your company, we love what you are doing in India, but strategically we dont understand this investment.

For GMR too, the acquisition done at the peak of the previous cycle was a burden. It had been a painful wait for the company that could not raise funds to meet the demands of Indian projects. In June 2009, it scrapped a $500-million fund-raising plan despite eight bankers arranging the sale, as investors balked at its strategy. It was not that GMR mandated BofA Merrill to find a buyer. But a feeling in Agarwal after years of association with the company including in its initial public offering in 2006.

Huaneng, that is close to Merrill , had been active in M&A . It bought Tuas Power , a portfolio firm of Singapores Temasek Holdings, for some $3 billion in 2008, among other global assets.

But InterGen had more complications than some could imagine . Assets in developed countries spread over continents, seller in an emerging market, buyer in another which is a rival than a friendly neighbour, at least politically.

Effectively speaking, six different groups were involved, said Balakrishnan who likes reading Fredrich Von Hayek , the Nobel laureate who authored The Road To Serfdom, a critical work on central planning. The teams included energy and power groups in Europe, the US and Asia. Then China, the US and India M&A teams.

Merrill also played a role in Bhartis $10.7-billion acquisition of Zain, Vedanta Resources $9.5-billion ongoing takeover battle for Cairn India , and the consolidation of cement businesses of the Aditya Birla Groups Grasim Industries and Unitech .

All these deals have kept the BofA Merrill team on the toes with few holidays to relax, barring some when Balakrishnan squeezed to visit the magnificent Mehrangarh Fort in Jodhpur.

Nipun Agarwal loves travelling in Europe, especially Scotland. All that he looks forward to this year is more deals, and some vacation in Europe, once the snows are cleared.

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