In its nearly 28 years of existence, Singhi Advisors had advised clients on more than 1,000 transactions with total deal value of about $6 billion. The investment banking firm, started in 1989, has emerged as a home-grown firm focussing on cross-border and domestic mergers and acquisitions.
Singhi Advisors is now looking to convert fee income into sweat equity, and also to offer part of the stake earned as sweat equity to its employees, a first by an IB firm in the country, says its Founder and Managing Director Mahesh Singhi. Edited excerpts from an interview
India has been witnessing surge in FDI since 2015, overtaking the US and China. The record $55 billion in 2106 was mainly led by the $13-billion Rosneft-Essar Oil deal, which was billed as India’s largest inbound FDI investment.
We foresee a possible increase in FDI inflows in stressed sectors such as e-commerce and telecom through the M&A route. Renewable energy sector is likely to witness M&A deals and increased greenfield investments. The manufacturing sector has emerged as a major contributor to the FDI investment kitty in terms of inflows and has garnered significant investor attention for future investments.
Now, are start-ups increasingly looking at venture debt? What is driving this interest?
Venture debt is a magnet where equity interest works like iron filings. The fundamental premise of venture debt is not to take equity risk, as that is a sure-shot path to adverse portfolio outcomes. Companies which are eligible for venture debt are typically those that have raised institutional equity and are seen to have a strong ability to sustain equity interest.
This is a function of the management team, market opportunity, brand or quite simply time available, which provides sufficient runway to learn from mistakes and create a stronger business. Founders need to think about probability of survival and probability of growth, given that their venture is typically their sole focus compared with VCs having multiple shots at the goal. Venture debt improves the probability of survival in the short-term as it provides a buffer of capital for founders to use as appropriate. The high alignment to venture debt is because survival comes before growth.
How do you see the present investment climate in the country?
India has emerged as an attractive capital destination, given the weakness in the rest of the world. All that the government needs to do is tweak the investment climate, which will result in large-scale capital inflows. Second is the idea that scaling up public spending, especially infrastructure, will raise returns sufficiently to attract private investors.
India will have to turn off the investment tap to the public infrastructure domain that’s been underpinning even the modest growth seen so far. Private capital can provide the much-needed boost in investment and infrastructure needed by India. This can be achieved by incentivising the entry of long-term capital into India, taking into account the fact that the country is viewed as a risk destination on account of policy and administration issues.
In order to improve the investment climate, the Government should announce wide-ranging initiatives for better tax administration, and quicker and more transparent investor appeal mechanisms against judgments and disputes. In order to project India as an attractive investment destination, the government will have to announce an infrastructure project pipeline open for investment and stand as a guarantor for risks arising from arbitrary State actions.
Is Singhi Advisors looking to diversify its business offerings?
The next level of growth comes from converting potential fee income into sweat equity, partnering with growth risk and thus carving out a niche model in investment advisory in the country. We have already started working towards crystallising our fee income into equity in three more companies in the first phase to shape up the business model, and work seamlessly with the management teams to drive growth, work out strategic alignments with the global leaders and raise funds wherever required to build long-term value along with our respective clients.
We have been working on assignments to offer part of stake earned as sweat equity to the respective teams which manage these companies.
Singhi Advisors is a mid-sized i-banking firm. How do you compete with the big guns?
Our ability to provide end-to-end services extends to not just easing the post-closure integration phase, but also allowing the client to remain focussed on the big picture.
On any given day, our work could include advising a company on a cross-border merger, domestic transactions, cash-backed transactions to equity swaps, transactions between healthy clients to companies in distress and more.