KMCC, owned by Kotak Mahindra Bank, is the latest to chose an alliance model, following many boutique i-banks, who could not get much headway with similar alliances. The Indian i-bank, which formed an alliance in 2009 with Japanese GCA Savvian, recently announced one deal of Kokuyo purchasing school stationery maker Camlin.
The US and UK are very important markets as many deals come from there, so it makes sense for us to have such a partnership, said Falguni Nayar, managing director, KMCC.
The Indian i-banks are under pressure as they fail to win large mandates from Indian companies as multinational bulge bracket firms snatch deals with their global network and ability to fund clients to purchase companies.
The alliances formed across borders are loose partnerships which come together so the firms are able to go for cross-border M&A effectively, said Rohit Berry, partner at tax, risk and M&A advisory firm BMR Advisors. Kotak Investment Bank does not have the cross-border ability and hence, the alliances work very well for them.
The value of cross border deals between India and Britain has grown twenty times to $20,837 million in financial year ended March 2011 from $1078 million in financial year 2010. However, the value of deals between India and Europe fell to $3119 million in financial year 2011 as against $12,505 million in the previous financial year, data from Bloomberg Wires shows.
Something is better than nothing to have a global reach, says the managing director of a foreign investment bank. In one deal, Kotak Mahindra Bank owner Uday Kotak formed a global network without giving up a single share.
Roger Altman, a former deputy secretary with the Bill Clinton who later built Evercore, is a big name in Wall Street and can make a difference for Kotak if it can leverage the client roster, he added. He cannot be quoted as he is not allowed to speak on rivals.
Altman, former co-head of investment banking at Lehman Brothers, left to build Evercore in 1996 with 10 people and expanded to 800 employees now. Last year, when many banks were grappling with the financial crisis, Evercore doubled its employee.
The British Petroleum and Reliance Industries deal is a blueprint of the kind of M&A activity that can happen in India, says Philip Kassin, senior MD, Evercore Partners.
Alliances in investment banking havent been most successful because it leads to exclusivity and makes partners bound to each other in that region, says Berry of BMR. When there is no financial commitment between two parties, then the cultural differences, approach and style towards the deal can pose a problem. According to him, more investment banks in India will also look at alliances as cross-border M&A is a very important business and an alliance does not require much investment.
Evercore was bankers to Warren Buffets Berkshire Hathaway purchase of Lubrizol Chemicals and global reinsurer Swiss Re.