Houlihan Unveils Indian Partnership, Firm buys ‘sizable minority stake’
July 19, 2010
Houlihan’s Passage to India – By acquiring a stake in Avista, the banking firm has established a foothold in a country poised for explosive growth
Houlihan Lokey’s investment in an Indian banking firm – a deal two years in the making – is its first acquisition in the country and the latest in a series of moves by the firm to broaden its reach beyond the United States.
Since beginning its foreign expansion in 2002, Houlihan has opened offices in Paris, Frankfurt, Hong Kong, Tokyo and Beijing. And Scott Adelson, senior managing director, says its next partnership could be in Eastern Europe or Latin America.
“We are following our clients around the world. A commitment to offering our clients the best possible advice in today’s world includes being able to bring a global presence,” he said in a telephone interview with IDD.
This week, Houlihan unveiled its strategic investment in Avista Advisory Group, a decade-old Mumbai banking firm.
The price was not disclosed, but Adelson said Avista will use the proceeds to fund an expansion. Houlihan will have an executive on the ground at Avista; Kushal Kapadia, who has worked with Houlihan for 11 years.
“We bought a sizable minority stake. The stake was to put money into the business to grow the business,” Adelson said.
Being a private company, Houlihan does not publish details about its financials. However, Adelson said a “bulk” of its fee income comes from U.S. mandates. “I would guess that, at least for the near term, the majority of our revenue will come from the United States.”
Last year, its notable domestic assignments included advising creditors in CIT Group’s bankruptcy (the nation’s largest prepackaged bankruptcy) and advising bondholders in the General Motors Corp. bankruptcy.
In addition to following in its clients’ tracks, Houlihan was lured to India by the nation’s rapidly growing economy.
Adelson cited “the growth that is going on there” and “the number of transactions we have been involved in over the past few years in the U.S. and Europe involving Indian clients” as reasons behind the move into India. “The aggresiveness of some of the Indian conglomerates has been quite substantial. We have had the pleasure of working with quite a few of them.”
India’s gross domestic product grew 6.5% last year after growing 7.4% in 2008 and in 2007, according to the Central Intelligence Agency’s World Factbook. The nation gets 54.9% of its GDP from the services industry, 28.3% from industrial businesses and 17% from agriculture, even though just over half of the nation’s people work in some aspect of agriculture.
The industries that have experienced the most mergers and acquisitions in India are industrials and telecommunications (which has gotten a boost from the rapidly growing middle class).
Avista specializes in middle-market companies, but its collaboration with Houlihan may allow it to work with larger businesses in South and Southeast Asia. In addition to its main office in Mumbai, it has an office in Singapore.
Adelson expects Indian companies to buy U.S. and European businesses, and he expects non-Indian businesses to target that nation’s companies.
“What we are seeing is there are a meaningful number of Indian companies interested in buying U.S. assets,” he said. “We have, at any given point of time, represented a meaningful number of sellers in the U.S.”
Houlihan and Avista likely will find themselves busy with private equity and hedge funds interested in the rapidly growing economy; both types of investors have stepped up their operations in India in recent years. TPG Capital, Kohlberg Kravis Roberts and Carlyle Group, for example, have branches in Mumbai. Other Wall Street firms with a presence in India include Goldman Sachs, Morgan Stanley and JPMorgan Chase.
There likely will be plenty of M↦A mandates for Houlihan and Avista in India, but changes in Indian regulations may also help the duo find work as equity underwriters in the coming years.
In a report published last month, Celent said a new regulation requires every listed company to have at least 25% of its shares owned by investors who are not employees; as a result, $30 billion to $50 billion of equity offerings could come to market in the next two to three years.
According to the CIA World Factbook, the market value of all publicly traded stock in India was $1.227 trillion late last year.
So What is Avista?
Rajiv Kochhar founded Avista as a boutique in 2000. He started his career in the late 1980s with 20th Century Finance, a boutique Indian banking firm founded by several former Citigroup bankers. At 20th Century, Kochhar helped set up one of India’s first venture capital firms, 20th Century Venture Capital.
He then joined India’s famed Tata Group and started and ran its investment banking business, a unit of Tata’s truck fleet finance company.
When Avista opened its doors, it operated as a traditional project finance advisory firm working with midcap companies, which used proceeds from these financing deals to construct facilities such as manufacturing plants. Avista then branched out into structured debt financing for middle-market companies. In India, such companies typically have revenues of $50 million, Kochhar said. “That’s where the need was. For a boutique to grow, [Avista had] to actually service the mid-market.
“Today, Avista has 25 professionals; that number could eventually increase to 35 or 40, according to Kochhar, who plans to open a branch in Delhi. “There’s a huge amount of corporates that we are already very well linked with” in Delhi. “We would like to have a representative close to our clients.”
IDD, Investment Dealer’s Digest