Investment bankers are a tensed community at the moment as deal completions have dried out, however they remain optimistic over the future. A recent McKinsey report on the investment banking business indicates that the emerging markets, including India, would provide the growth momentum.
According to a Grant Thornton survey, the total number of M&A deals during the first seven months of 2008 stands at 315, with an announced value of $18.10 billion, against 394 deals amounting to $ 44.91 billion during the corresponding period in 2007. The total number of M&A deals announced during the calendar year 2007 stood at 676 with a total announced value of $51.11 billion.
Srividya, partner, specialist advisory services says, ?M&A deals have come down in value terms in July. But we need to wait for another 2- 3 months for a clear picture to emerge. If the monthly average of M&A deals continues to at sub-million dollar level, it would be worth worrying. As far as volumes go, the picture is a little better. While the number of deals has come down, it has not crashed, which means deals are happening but their size is smaller. ?
At the moment there are no widespread lay-offs in the industry. ?This is because most of the players are funded, as opposed to 2,000 when they were not and the market completely crashed,? says an investment banker, not wanting to be named. Overall, there has been a build-up in deal initiations but not on completions. ?The pipeline for investment bankers is huge, just that closures are not happening,? he adds.
If this situation continues and the pipeline does not deliver, then there could be a squeeze on investment banking activity and employee benefits. However, McKinsey & Company thinks there would be a strong business flow from investment banking business. The latest report states, ?A new breed of corporate players, notably in countries like China and India, and the UAE, now demand the sophisticated investment banking serivces previously reserved for large western multinationals. This new group thus represents an increasingly attractive pool.? The business is set to grow at a rate of 16% between 2007-2010. ?Asia will continue to represent a lion?s share 66% of the emerging market? revenue stream of almost $120 billion,? says McKinsey. And even if the recovery stalls, revenues from the emerging markets will rise 6% and be $90 billion by 2010 and account for a 30% share, the report adds.
?India?s growth is also expected to be strong. That said, India?s lower growth and lower savings rate mean that India?s accumulated financial stock will be only one-fifth of China?s,? says the report.