It has been a great year for mergers and acquisitions (M&As) in India in 2018 with the total transaction value crossing the $100-billion mark.
It has been a great year for mergers and acquisitions (M&As) in India in 2018 with the total transaction value crossing the $100-billion mark. Mahesh Singhi, founder & MD, Singhi Advisors, which is focused only on mid-market deals, shares his expectations for the year ahead in an interview with FE’s Rouhan Sharma. Excerpts:
Unlike most advisory firms, you are focused only on M&A. Comment.
This is correct. At Singhi, unlike many other firms that do private equity deals, corporate finance as well as M&A, we concentrate only on M&A. Within M&A, our target range is mid-market companies with a revenue of Rs 200-5,000 crore and a transaction size of Rs 100-1,000 crore. Our proposition is we are business consultants who understand and diagnose a particular business, find the missing links and suggest M&As, sometimes opportunistic, and sometimes by design. Most are planned transactions. Our positioning is mid-market M&A.
How do you identify such M&A opportunities?
Almost all business leaders at Singhi have prior experience of leading businesses either as CEOs or other senior management positions. For instance, our building materials industry leader is led by a former MD of Bombay Burmah Trading (BBT). In fact, we had sold BBT’s Sunmica division in 2011 for Rs 100 crore. Our auto components business is led by the former MD of Greaves Cotton and Mahindra Navistar, which is now M&M’s truck and bus division. Similarly, we have MDs and CEOs of other companies heading various industry verticals within Singhi. They are supported by a large team.
How has 2018 been for you in terms of deal flow?
Good. It could have been much better but for certain situations at the National Company Law Tribunal (NCLT) where we had to withdraw from a couple of auctions. We have done about 10-12 deals this year at an average of a deal every month and an overall value at slightly over Rs 2,000 crore. We sold for UltraTech their ready mix concrete (RMC) business. RMC uses a lot of stone aggregates and it is difficult to get a consistent supplier. To fill this gap, UltraTech had earlier acquired some quarries to ensure consistent supply of stone. Once this purpose was achieved and the system was in place, this business became non-core. We ensured we helped them to dispose these quarries to nine different owners but still maintained the supply arrangement. This deal was done earlier this year. While UltraTech clearly is not a company in the mid-market category, the size of the deal was within our specified range.
Another deal we did was selling the Nirlep brand to Bajaj Electricals last quarter. It made sense for Bajaj to fill a gap in their portfolio in the kitchenware space as they already have kitchen appliances, but not the full range. The No. 1 player in this space is TTK, followed by Hawkins and then Nirlep. While the gap between these three are very big, however, with a platform like Bajaj, chances to grow the acquired business tenfold in three years are very possible, which is what they are now aiming to do. For the seller, the makers of the Nirlep brand will focus on their auto components business and still continue to manufacture for Bajaj.
What is your focus going to be in 2019?
The focus is on five sectors for the next three years at least where we anticipate a good amount of M&As. One is auto components where for Indian companies, a good part of their growth has come from overseas acquisitions in high-value markets. Five years down the line, we know this business will grow threefold. The second is specialty chemicals. Indian companies have scaled up and are globally competitive. There is a level-playing field. China may be very good in the bulk business but India is well placed with an edge over them in batch processing. Both the domestic and export markets are also doing well.
The third area is polymers and/or plastic. The use of plastics is only going up in the auto industry, and as a building material. We have done five transactions out of a total of six in this industry in the last few years.
The fourth area is building materials which covers the entire range of inputs in the construction industry. The fifth segment is M&A in distressed assets across any sector where there is good value available.