Corporate law firms benefit from rise in value of M&As, share sales

Mumbai: Corporate law firms in India are benefiting from an increase in the value of mergers and acquisitions (M&As) and share acquisitions during the course of the year. The enterprise value of deals on which law firms have advised has shot up to $35.7 billion this year till December, a 22% increase over the $29.3 billion in deals seen in the whole of 2013, according to Thomson Reuters data.

India's biggest law firm Amarchand and Mangaldas and Suresh A. Shroff and Co. topped the league tables for 2014 just like the previous couple of years. It was followed by AZB and Partners.

"The deal upsurge is due to the renewed confidence in the country," said Cyril Shroff, managing partner at Amarchand and Mangaldas and Suresh A. Shroff and Co. "The entrepreneurial Indian is back in form. We will surely see activity in sectors like healthcare, logistics, etc., and the complex legislations make the need for using lawyers," Shroff said.

"We feel the pace for M&A activity has picked up already. The investment sentiment has certainly improved. I feel this would drive both strategic and private equity to be more bullish on India," said Zia Mody, co-founder of AZB and Partners.

The increase in the value of M&As was driven by bigger deal sizes, even as the number of deals in 2014 remained steady compared to a year ago. In 2014, 1,003 deals were struck, just one more than the number of deals struck in 2013.

The increase in M&A activity owes a lot to improved business sentiment after the Lok Sabha election, said representatives of law firms.

"A lot (rise in M&As) is attributable to a change in the mindset of promoters, companies looking to restructure and get out of non-core business, and due to funding requirements," said Rabindra Jhunjhunwala, founding partner at Khaitan and Co. His firm is one of the 13 legal firms this year to advise on deals worth at least $1.5 billion.

Another reason for the pick-up in activity has been an increase in sales and restructuring of stressed assets, as some highly leveraged firms have sold assets to reduce debt. This is especially true for the power sector where a number of assets have changed hands, such as Lanco Infratech Ltd selling its Udupi power plant to Adani Power Ltd, and Jaiprakash Power Ventures Ltd selling some hydropower units to JSW Energy Ltd.

"In 2014 specifically, the rise in M&As was led by the fact that many companies were selling non-core assets to have liquidity to service debts. This trend will continue for some time because a lot of capital management is required today," said Priyanka Roy, a partner at IndusLaw.

"...in the last four years, there hasn't been asset monetization. Lenders will now aggressively push for liquidity in companies where they have helped with restructuring," Roy added.

This jump in deal activity seems to have benefited Indian law firms more. Eleven home-grown firms figure in the top 25 law firms that have advised on M&A transactions this year, compared to just six each in the previous two years.

"Overseas investment by India has been slow in the last two years. Moreover, Europe has not been doing well and the US is only now turning around," said Roy, explaining why Indian firms have seen a larger share of the business compared to their multinational peers.

The two largest deals in 2014 all involved companies listed in India. The top deal of 2014 was the $4 billion merger of Sun Pharmaceuticals India Ltd and Ranbaxy Laboratories Ltd. This was followed by a $2.4 billion merger deal of Kotak Mahindra Bank Ltd and ING Vysya Bank Ltd.

Amarchand and Mangaldas was involved in both these deals as adviser. The firm advised on a total of 34 deals in 2014 with a total value of $11.4 billion. In terms of the number of deals, AZB topped the league table advising on 63 transactions worth $8.4 billion.

There is a caveat when looking at these numbers though. If five lawyers are advising a $1 billion deal, the deal amount won't be split between them. The whole deal value would be ascribed to each of them individually when calculating these rankings. In some major transactions, as many as four law firms have been involved on each side, which could be one reason for the rise of Indian firms in the rankings.

According to legal experts, whether the stronger levels of deal activity sustain in 2015 or not will depend on economic growth and the ability of the government to create a business friendly environment.

"Whether this (M&A trend) can be sustained will depend to a large extent on the new government being able to live up to its promise of being business friendly and reform focused. The government will have to prove itself with its next Budget," said Christopher Krishnamoorthy, associate partner, Majmudar and Partners, International Lawyers.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.