INVESTMENT BANKING

Summers Preparation

Vikas Dugar
Aayush Vishnoi
Structure of an I-bank
Clients Seeking Capital Intermediary Directing / Facilitating the Flow of Capital Investors With Capital

INVESTMENT MANAGEMENT
(Private Wealth / Asset Management)
PUBLIC INSTITUTIONAL
COMPANIES INVESTORS
INVESTMENT BANKING MERCHANT MARKETS
BANKING
Advisory Financing • Traditional Private • Sales
Groups Group Equity Fund
• Trading &
§ Country § Debt Product • Real Estate Private Strategy
Teams Groups Equity Fund
PRIVATE • GSS/Prime RETAIL
COMPANIES § Industry § Equity • Infrastructure INVESTORS
Brokerage
Teams Product Fund
Groups • SSG
§ Derivatives

GLOBAL INVESTMENT RESEARCH

GOVERNMENT & Operations, Technology Human Capital Legal/Management GOVERNMENTS

AGENCIES & Finance Management Compliance Controls & AGENCIES
*Including Services

EXECUTIVE OFFICE

Chinese Wall

Source: GS Sumer Internship presentation

2006
Work done by IBD Team
 Relationship Development
 Acquisition Strategy
 IPO Advisory
 Defense Strategy
 Sale Advice
 Execution of M&A
Reasons for Recent Trend
 Debt Restructuring to avoid bankruptcy
 Relatively low valuations
 Liquidity Crunch (For FI’s)
 Global Expansion by Firms
 Structured Products that aid fund raising for deals
 Shareholder Activism
 Participation by Private Equity Firms
Preparation for IBD (1/10)

Regulations
 SEBI Take-Over Code
 Anti-Trust Laws
 FDI norms on key sectors
 AS on Amalgamations
 Amalgamation by Pooling of Resources
 Amalgamation by Acquisition
Preparation for IBD (2/10)

Types of Valuations
 Multiple Based Valuations
 P/E, EV/Tonne
 Comparables Method
 Sum of the Parts Valuation
 Most often method used in M&A today
 DCF Valuations
 Used in Manufacturing Industries
Preparation for IBD (3/10)

Key Industry
 Steel
 Metals (Aluminum)
 Banks and Financial Services
 Automobile
 Telecom
 Airlines
 Spirits Business
 Retail
 IT & BPO Services
Preparation for IBD (4/10)

Steel Industry

 Major Deals
 Mittal Arcelor
 Tata Corus
 Essar Steel acquired a Canadian
firm
 Parameter for Evaluation: EV/Tonne
 Did Tata Steel over-pay?
 What is Tata Steel doing with
Corus?
Preparation for IBD (5/10)

Metals

 Major Deals
 Hindalco – Novelis
 Parameter for Evaluation:
EV/Tonne
 What was the reason for this
acquisition?
 Did Hindalco over pay?
Preparation for IBD
Steel Industry
 Major Deals
 Mittal Arcelor
 Tata Corus
 Essar Steel acquired a Canadian
firm
 Parameter for Evaluation: EV/Tonne
 Did Tata Steel over-pay?
 What is Tata Steel doing with
Corus?
Preparation for IBD
Metals

 Major Deals
 Hindalco – Novelis
 Sesa Goa-Vedanta
 Parameter for Evaluation:
EV/Tonne
 What was the reason for this
acquisition?
 Did Hindalco over pay?
Preparation for IBD
Banks & Financial Services
 Major Deals
 Stakes acquired in GS & MS
 Lloyds TSB acquisition of HBOS
 JPM acquisition of Bear Sterns
 RBS acquisition of ABN AMRO
 India: HDFC & CBOP
 Events out of the credit crisis
 Parameter: Geographical Spread, CASA: Current Account
Savings Account, Advances Growth, Gross NPA ratio, Net
NPA/Net advances, RWA/Total Assets, Cost / Income Ratio,
Cost of Funds, NIM-Net Interest Income/(Average Interest
Bearing assets),
 Capital Adequacy ratio-need to raise capital
Preparation for IBD
Insurance and financial Services
 Insurance
◦ Fast Growth-Long gestation period
◦ Solvency Ratio-Driving the need to raise capital
 Brokerage Industry
 NBFCs:

◦ Home Loans
◦ Vehicle loans
◦ Personal Loans
◦ Infrastructure Loans
 Micro Finance
 Preparation for IBD
Telecom
 Major Deals
 Idea Cellular - Spice
 Hutch – Vodafone
 Unitech-Telenor, Swan- Etisalat
 NTT Docomo-Tata teleservices
 Parameters:
 Revenue=Subscribers x ARPU
 Revenue = RPM x MOU
 Spectrum availability (900 Mhz, 1800 MHz)
 EVA/No. of subscribers
 Common Questions:
 What was the cost per customer?
 Why did Hutch Sell? What was the value that Vodafone saw?
 What are the tax hiccups they face with the Indian revenue
authorities?
Preparation for IBD

Bharti MTN deal

 $24-billion cash-and-share swap deal which will
have over 200 million subscribers and $20 billion in
annual revenues
 Bharti to buy 49% of MTN for $14 billion MTN, to
acquire 33% of Bharti for about $10 billion
 Merged entity to be the world’s third-largest
mobile phone operator by subscribers that would
straddle Africa, Asia and the Middle East.
 South African government keen on dual listing –
Indian laws do not allow dual listing
 GDR issues with voting rights may fall under SEBI
takeover code
Preparation for IBD
Airlines
 Major Deals
 Kingfisher – Air Deccan
 Jet – Air Sahara
 Parameters: Average fuel costs, average
yield/passenger, average yield/kg, Passenger Load
Factor, Number of Departures, revenue/passenger-km
 What is the current industry scenario?
Further Consolidation?
 Details regarding Jet & Kingfisher
agreement/ Deccan buyback
Preparation for IBD

IT Services
 Major deals:
◦ Satyam-Tech Mahindra
◦ Axon Group Plc-HCL Technologies
◦ Citigroup Global Services-TCS
◦ Citi technology services Ltd.-Wipro
◦ Aviva global services-WNS Holdings Ltd.

 Parameters: Geographical split, Vertical split, Utilisation

rate, Attrition, Pricing, Employee additions, Client additions,
Hedged forex positions.
Preparation for IBD
Spirits Business
 Major Deals
 UB – Whyte & Mackauy
 UB – Tattinger
 Bid on Scottish & Newcastle plc
 Parameter: Brands, Access to markets,
Capacity
 Did UB over pay?
 Further Acquisitions?
Preparation for IBD

Others:
 Oil and Gas:
◦ Imperial Energy Corp Plc-ONGC
◦ Reliance petroleum Ltd-Reliance Industries
Ltd
 Pharma: Ranbaxy-Daiichi Sankyo
 Auto and auto ancillary: JLR-Tata Motors
 Infrastructure and Engineering sector
 Retail
 FMCG
Preparation for IBD
Other Important Questions

 Future Acquisitions in Industries?

Why?
 3 companies to acquire?
 3 companies to have stake in?
 What strategy would you pitch to
the leader in the market?
Primary Market

The market for new issue of securities.

 Primary market issuers are bodies corporate, mostly

companies under the Companies Act, 1956. Other
bodies corporate are corporations owned pre-
dominantly by the Government.
 The main market for new issuances are Public Issues

(IPOs and FPOs), Rights Issues and Private

Placements.
 The main constituents of the primary market are –

Investors, Issuers, Instruments and intermediaries.

Primary Market

 Investors are in three categories – Institutional, HNI and

Retail.

 The main instruments that can be issued are pure equity

(ordinary shares), pure debt such as NCDs/long term notes
or bonds and convertibles. Convertibles can be debt
convertibles such as PCDs/FCDs and equity convertibles
such as warrants.

 The main intermediaries associated with the primary market

are merchant bankers, underwriters and brokers. The service
providers are bankers, registrars, depository participants,
couriers and printers.
Institutional Investors

 Also known as Qualified Institutional Buyers (QIBs)

as per regulations –
◦ Multilateral, Bilateral and Domestic Financial Institutions
(MFIs/ DFIs)
◦ Foreign Institutional Investors (FIIs)
◦ Unregistered Foreign Investors (FDI Investors)
◦ Foreign Venture Capital Investors (FVCIs)
◦ Domestic Venture Capital Investors (VCs)
◦ Domestic Mutual Funds (MFs)
◦ Commercial Banks
Non-Institutional Investors
 High Networth Investors – These are investors who
cannot be categorized either as Institutional or Retail –
◦ Non-banking Financial Companies
◦ Capital Market Intermediaries (other than in issues wherein they are
acting in official capacity)
◦ Investment companies, trusts, societies and other incorporated
bodies
◦ Partnership Firms
◦ HUFs and Individuals
 Retail Investors –
◦ Are those whose application in a public issue does not exceed Rs.
100,000 in value.
◦ Any of the above category of investors under the HNI category can
be a retail investor if the application size does not exceed the
above limit.
Methods of Raising Funds

 IPO
◦ Fixed Price Offer – also known as 100% retail offer
◦ Book Built Offer – price discovery through book building
 FPO and Right Issues
 Qualified Institutional Placement
Depository Mechanism

 Depository - security that represents ownership in a

foreign security. Therefore they are negotiable securities
in a foreign jurisdiction that represent a company’s
publicly traded domestic equity.

 An ADR is an American security that is issued through

a public offering in the US which requires SEC
registration.

 A GDR is issued anywhere in the world through a

public offer but only through private placement (Rule
144A) in the US.
Underwriting
 Contingent Obligation

 Underwriting Agreement and Commission

 SEBI (Underwriters) Rules 1993

 Devolvement
◦ Tata Motors Rights Issue – JM Financial
◦ Hindalco Right issue

 Optional in fixed price offers, compulsory in book-

built offers to the extent of NPO.
Preparation stuff
 HR Questions
◦ Why IBD?
◦ Why not Markets / Consulting?
◦ Lifestyle management
 Other resources
◦ Vault Guides
◦ Text Books
 Corporate Finance, Macroeconomics, Valuation
◦ Online News resources
 Bloomberg
 http://online.wsj.com/public/page/news-mergers-acquisitions.html
 http://www.marketwatch.com
 http://money.cnn.com/news/deals/mergers/dealchart.html
Thank You

Questions ???
Companies with high shareholder returns (02-07)

Source: Business world

Companies with high shareholder returns (02-
07)-mid cap

Source: Business world