64 billion U.S. dollars in bank mergers and acquisitions landing investment bank commissions are only a pitiful 1 million

64 billion U.S. dollars in bank mergers and acquisitions landing investment bank commissions are only a pitiful 1 million

64 billion U.S. dollars in bank mergers and acquisitions landing investment bank commissions are only a pitiful 1 million

On July 1 this year, HDFC Bank, India’s largest private bank, acquired its parent company and India’s largest mortgage loan company – the transaction of Housing Development Finance Corporation officially landed.

  According to reports, this $64 billion full share swap deal is also the highest-ever merger in India. Every 25 shares of HDFC shares can be exchanged for 42 shares of HDFC Bank. Housing Development Finance Corporation will be officially delisted from the Indian stock exchange on July 13.

Based on closing prices on July 3, the two listed companies have a combined market capitalization of nearly $180 billion. On a global scale, this volume is roughly equivalent to the fifth largest bank stock , only lower than JPMorgan Chase (425 billion U.S. dollars), Industrial and Commercial Bank of China (based on A-share stock price, the total market value is equivalent to 239 billion U.S. dollars), Bank of America (2326 billion U.S. dollars) billion) and China Construction Bank (equivalent to US$217.8 billion in terms of A shares), roughly in the same position as Agricultural Bank of China (equivalent to US$173.1 billion).

  18 brokerages share $1 million commission

Of course, this article does not discuss how important this M&A is, but behind this transaction, the real situation of investment bankers in India.

According to media reports on Tuesday, citing people familiar with the matter, nearly 18 investment banks providing consulting services on both sides received a total of “commissions of slightly more than US$1 million” in this transaction recorded in India’s financial history. The bank will take the absolute majority of the commission pool, and the remaining institutions can only take a symbolic amount.

(The position in the merger announcement also shows the position of the investment banks in this transaction, source: HDFC)(The position in the merger announcement also shows the position of the investment banks in this transaction, source: HDFC)
The announcement also shows that JPMorgan Chase, Citigroup, Goldman Sachs, Jefferies, and India’s leading local investment banks Kotak Mahindra and Axis Capital are all on the list of consultants.

The commission pool for the deal is “disproportionately small” ,  the source said , largely due to the commission being paid by HDFC chairman Deepak Parekh.The leading management team promoted the entire merger process, and these investment bank consultants played a very limited role . The reason why Morgan Stanley and Bank of America took the lead is because they provided valuation opinions during the transaction process. Many other investment banks did not play any role at all, and some even just learned of such a thing the day before the official announcement of the transaction.

Regarding this matter, Pranav Haldea, managing director of the transaction data platform Prime Database Group, explained that India is a very difficult market from the perspective of rates. Investment banks can either provide value-added services or have the ability to structure complex transactions in order to get higher commissions. India is an extremely price sensitive market and one always needs to keep costs under control.

Of course, what happened in India is also a microcosm of the global financial circle in a sense. According to statistics, the global M&A and IPO transaction volume in the first half of this year was only 1.3 trillion US dollars, a decrease of 42% compared with the same period last year. Excluding the disturbance caused by the epidemic in the first half of 2020, this year’s transaction volume is already the lowest value in the past ten years, and it is also lower than the average level of the past 20 years ($1.5 trillion). A lack of cheap capital and price negotiations were the main reasons for the plunge in transaction volume.

Affected by this, JPMorgan Chase, Goldman Sachs, Citigroup, and Morgan Stanley all cut some positions in the investment banking department this year. However, the consulting departments of these investment banks in South Asia have basically not been affected, but the main reason is that the team size in these regions is already very small and the cost is very limited.

Leave a Comment