Pranit Final Project Investment Banking PDF

Summer Project Report
On
“Investment Banker
And it’s Role in
Merger & Acquisitions”
In the partial fulfillment of the Degree of
Master of Management Studies under the University of Mumbai
By
DESAI PRANIT BALKRISHNA

[Roll No: B/06]
SPECIALIZATION: FINANCE
Under the Guidance of
Mr. NIKESH RUPAREL PROF. M. K. VERMA

(External Guide, Organization) (Internal Guide)
Aruna Manharlal Shah Institute of

Management and Research
Ghatkopar [W], Mumbai-86
2012-2013
Investment Banking & its Role in Merger & Acquisitions
CERTIFICATE
This is to certify that summer project report entitled “Investment Banker & its
Role in Merger & Acquisitions” is submitted by Master Pranit B. Desai
student of MMS in the partial fulfillment of the degree of Master of
Management Studies (MMS) in Finance under the University of Mumbai at
Aruna Manharlal Shah Institute of Management & Research, Ghatkopar (W),
Mumbai for academic year 2011-2012.
----------------------- ---------------------------
MK VERMA Dr. J K Sachdeva
(Internal Guide) (Director)
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TO WHOMSOEVER IT MAY CONCERN
2
ACKNOWLEDGEMENT
I take this opportunity to extend my sincere thanks to “BIRLA SUNLIFE INSURANCE”

for offering me a unique platform to earn exposure and earn knowledge in the field of finance
and learn the day-to-day activities that are carried out in the firm.
I am thankful to Mr. NIKESH RUPAREL and all employees of BIRLA SUNLIFE

INSURANCE for helping and guiding me to prepare the project report.
With immense pleasure, I express my deep sense of gratitude and thanks to my project guide
PROF. MK VERMA in addition for his interest, Encouragement and valuable guidance
during the project work.
I would like to thanks to, Dr. J. K. SACHDEVA (DIRECTOR) {ARUNA MANHARLAL

SHAH INSTITUTE OF MANAGEMENT & RESEARCH (AMSIMR) MUMBAI} for
giving me an opportunity to complete this project.
DESAI PRANIT BALKRISHNA
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INDEX
Sr. No. Topics Page No.

Chapter 1 a) Introduction 5-6
b) Objectives 7
c) Research Methodology 8
d) Literature Review 9
Chapter 2 INDUSTRY INTRODUCTION
a) Role of Investment Bankers 10-12
b) Investment Banker & its Importance 13-16
c) Regulatory framework for investment banking 17-22
d) Functions of Investment Banking 23
e) The Indian Scenario 24
f) Major Investment Bankers 25
g) Service Portfolio of Indian Investment Bank 26-29
h) Merger & Acquisition 30-32
i) Role of the Investment Banker in Mergers and Acquisitions 33
j) Valuation Method 34-35
Chapter 3 ABOUT FIRM
a) Special Study on J.M.Financial 36-37
b) Products 38-44
c) Balance Sheet 45-46
d) Profit & Loss Statement 47-48
e) Financial Ratio‟s 49
f) Acquisitions of Aditya Birla Nuvo over Pantaloons 50-51
Chapter 4 Specific Problem/data analysis 52
Chapter 5 Conclusion 53-54
Chapter 6 Reference 55
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INTRODUCTION
Investment banking
Investment Banking, branch of finance concerned with the underwriting, distribution, and
maintenance of markets in securities issued by business firms and public agencies. Investment
bankers are primarily merchants of securities; they perform three basic economic functions:
(1) Provide capital for corporations and local governments by underwriting and distributing
new issues of securities;
(2) Maintain markets in securities by trading and executing orders in secondary market
transactions;
(3) Provide advice on the issuance, purchase, and sale of securities, and on other financial
matters. In contrast to commercial banks, whose chief functions are to accept deposits and
grant short-term loans to businesses and consumers, investment bankers engage primarily in
long-term financing.
Investment banking is a field of banking that aids companies in acquiring funds. In addition to
the acquisition of new funds, investment banking also offers advice for a wide range of
transactions a company might engage in. Traditionally, banks either engaged in commercial
banking or investment banking. In commercial banking, the institution collects deposits from
clients and gives direct loans to businesses and individuals.
An investment bank is a financial institution that raises capital, trades in securities and
manages corporate mergers and acquisitions. Investment banks profit from companies and
governments by raising money through issuing and selling securities in the capital markets
(both equity, bond) and insuring bonds (selling credit default swaps), as well as providing
advice on transactions such as mergers and acquisitions. A majority of investment banks offer
strategic advisory services for mergers, acquisitions, divestiture or other financial services for
clients, such as the trading of derivatives, fixed income, foreign exchange, commodity, and
securities. Trading securities for cash or securities (i.e., facilitating transactions, market-
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making), or the promotion of securities (i.e., underwriting, research, etc.) was referred to as
the "side”. Dealing with the pension funds, mutual funds, hedge funds, and the investing
public who consumed the products and services of the sell-side in order to maximize their
return on investment constitutes the "buy side". Many firms have buy and sell side
components. An investment banking firm also does a large amount of consulting. Investment
bankers give companies advice on mergers and acquisitions, for example. They also track the
market in order to give advice on when to make public offerings and how best to manage the
business' public assets. Some of the consultative activities investment banking firms engage in
overlap with those of a private brokerage, as they will often give buy-and-sell advice to the
companies they represent. The line between investment banking and other forms of banking
has blurred in recent years, as deregulation allows banking institutions to take on more and
more sectors. With the advent of mega-banks which operate at a number of levels, many of
the services often associated with investment banking are being made available to clients who
would otherwise be too small to make their business profitable.
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OBJECTIVES OF THE PROJECT
The aim of this study is to assess the contributions of investment banking to the Indian
economy. The study focuses on investment banks as this part of banking is particularly
relevant for financing companies as well as the development and use of specific products to
support the needs of private and professional clients.
The structure of the study aims at considering the following aspects of investment banking.
First, an Introduction of the investment banks is given with the Objective & the Research
Methodology. Second, the Role, Importance, Regulatory Framework of investment banking is
listed. The main activities of investment banking that are included are, in particular,
Underwriting, Mergers and Acquisitions, Asset Management Services, Debt Restructuring.
The developments of these activities are analyzed over time and cross‐country. From this, the
study infers on the economic relevance of investment banking. Finally, an current example of
Acquisition is stated.
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RESEARCH METHEDOLOGY
1) Primary Data
The primary data used in this project is collected from J. M. Financial Services. The
company did not provide with much information as it was confidential.
2) Secondary Data
The secondary data in this project is collected from the internet.
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INDUSTRY INTRODUCTION
Role of Investment Bankers
Investment bankers provide service and advice to companies, organizations and governments.
Investment bankers also assist and advise companies on mergers and acquisitions, which
basically means that they act as the buyer or seller (whatever position the company is taking)
and negotiate the transaction. In other instances they just provide a strategy for action against
an unwelcome bid. Investment bankers provide a wide array of services, including
underwriting the issuance of equity or debt to aid a company having financial difficulties. It is
the duty of the investment banker to provide advice on issues such as how to raise capital
through equity or debt instruments.
In addition to the above mention activities, investment bankers also governments deal with
the privatization of public entities. For example, when the American government decides to
privatize a correctional facility, an investment banker will negotiate with a buyer and advise
or act on behalf of the government throughout the entire transaction. Privatization has become
a very lucrative focus for investment bankers. Although most popular in the United States and
the United Kingdom, it is a growing phenomenon in many governments.
An investment banker's main goal is to help clients achieve their goals. Investment bankers
will assist their clients with the implementation of their chosen plan, including but not limited
to buyouts. Investment bankers also must take charge of their own client load. Investment
bankers must identify and secure their own clientele, so they literally have total control of
how much or how little work they have.
Investment bankers need the function using the most up-to-date news sources, so they must
receive real-time market updates. In order to provide clients with the most accurate and
effective strategy, investment bankers need access to in-depth information and comprehensive
research and financial modelling tools to analyze the market and formulate likely outcomes.
An effective investment banker will form close relationships with each client, including
devoting numerous hours to client contact, meetings and even travel. Because investment
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bankers need to secure new clients, it is essential that they look for new opportunities for
existing clients.
Investment bankers function as intermediaries in financial transactions. They are experienced

in carrying out projects that, for most companies, take place very rarely, but are critically
important.
Investment banks provide four primary types of services: raising capital, advising in mergers
and acquisitions, executing securities sales and trading, and performing general advisory
services. Most of the major Wall Street firms are active in each of these categories. Smaller
investment banks may specialize in two or three of these categories.
The major roles include:
Raising Capital
An investment bank can assist a firm in raising funds to achieve a variety of objectives, such
as to acquire another company, reduce its debt load, expand existing operations, or for
specific project financing. Capital can include some combination of debt, common equity,
preferred equity, and hybrid securities such as convertible debt or debt with warrants.
Although many people associate raising capital with public stock offerings, a great deal of
capital is actually raised through private placements with institutions, specialized investment
funds, and private individuals. The investment bank will work with the client to structure the
transaction to meet specific objectives while being attractive to investors.
Mergers and Acquisitions
Investment banks often represent firms in mergers, acquisitions, and divestitures. Example
projects include the acquisition of a specific firm, the sale of a company or a subsidiary of the
company, and assistance in identifying, structuring, and executing a merger or joint venture.
In each case, the investment bank should provide a thorough analysis of the entity bought or
sold, as well as a valuation range and recommended structure.
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Sales and Trading
These services are primarily relevant only to publicly traded firms, or firms which plan to go
public in the near future. Specific functions include making a market in a stock, placing new
offerings, and publishing research reports.
General Advisory Services
Advisory services include assignments such as strategic planning, business valuations,

assisting in financial restructurings, and providing an opinion as to the fairness of a proposed
transaction.
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Investment Banker & its Importance
The importance of an investment banker is actually the importance of what they do. They
hold importance because of the services they provide to the economy and government. They
provide advisory services for financial transactions such as mergers and acquisitions for
companies. Without them there wouldn't be authorization to issue and resell new securities(
stocks and bonds),therefore it wouldn't be possible for investment banks to help private and
public companies raise funds for the capital markets which include both equity and debt.
Who needs an Investment Bank?
Any firm contemplating a significant transaction can benefit from the advice of an investment
bank. Although large corporations often have sophisticated finance and corporate
development departments, an investment bank provides objectivity, a valuable contact
network, allows for efficient use of client personnel, and is vitally interested in seeing the
transaction close.
Most small to medium sized companies do not have a large in-house staff, and in a financial
transaction may be at a disadvantage versus larger competitors. A quality investment banking
firm can provide the services required to initiate and execute a major transaction, thereby
empowering small to medium sized companies with financial and transaction experience
without the addition of permanent overhead.
What to look for in an Investment Bank?
Investment banking is a service business, and the client should expect top-notch service from
the investment banking firm. Generally only large client firms will get this type of service
from the major Wall Street investment banks; companies with less than about $100 million in
revenues are better served by smaller investment banks. Some criteria to consider include:
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Services Offered
For all functions except sales and trading, the services should go well beyond simply making
introductions, or "brokering" a transaction. For example, most projects will include detailed
industry and financial analysis, preparation of relevant documentation such as an offering
memorandum or presentation to the Board of Directors, assistance with due diligence,
negotiating the terms of the transaction, coordinating legal, accounting, and other advisors,
and generally assisting in all phases of the project to ensure successful completion.
Experience
It extremely important to make sure that experienced, senior members of the investment
banking firm will be active in the project on a day-to-day basis. Depending on the type of
transaction, it may be preferable to work with an investment bank that has some background
in your specific industry segment. The investment bank should have a wide network of
relevant contacts, such as potential investors or companies that could be approached for
acquisition.
Record of Success
Although no reputable investment bank will guarantee success, the firm must have a
demonstrated record of closing transactions.
Ability to Work Quickly
Often, investment banking projects have very specific deadlines, for example when bidding
on a company that is for sale. The investment bank must be willing and able to put the right
people on the project and work diligently to meet critical deadlines.
Fee Structure
Generally, an investment bank will charge an initial retainer fee, which may be one-time or
monthly, with the majority of the fee contingent upon successful completion of the
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transaction. It is important to utilize a fee structure that aligns the investment bank's incentive
with your own.
Ongoing Support
Having worked on a transaction for your company, the investment bank will be intimately
familiar with your business. After the transaction, a good investment bank should become a
trusted business advisor that can be called upon informally for advice and support on an
ongoing basis.
Because investment banks are intermediaries, and generally not providers of capital, some
executives elect to execute transactions without an investment bank in order to avoid the fees.
However, an experienced, quality investment bank adds significant cant value to a transaction
and can pay for its fee many times over.
The investment banker has a vested interest in making sure the transaction closes, that the
project is completed in an efficient time frame, and with terms that provide maximum value to
the client. At the same time, the client is able to focus on running the business, rather than on
the day-to-day details of the transaction, knowing that the transaction is being handled by
individuals with experience in executing similar projects
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Regulatory framework for investment banking
Investment Banking in India is regulating in its various facets under separate legislations or
guidelines issued under statute. The Regulatory powers are also distributed between different
regulators depending upon the constitution and status of Investment Bank. Pure investment
banks which do not have presence in the lending or banking business are governed primarily
by the capital market regulator (SEBI). However, Universal banks and NBFC investment
banks are regulated primarily by the RBI in their core business of banking or lending and so
far as the investment banking segment is concerned, they are also regulated by SEBI. An
overview of the regulatory framework is furnished below:
1. At the constitutional level, all investment banking companies incorporated under the
Companies Act, 1956 are governed by the provisions of that Act.
2. Investment Banks that are incorporated under a separate statute such as the SBI or IDBI are
regulated by their respective statute. IDBI is in the process of being converted into a company
under the Companies Act.
3. Universal Banks that are regulated by the Reserve Bank of India under the RBI Act, 1934
and the Banking Regulation Act which put restrictions on the investment banking exposures
to be taken by banks.
4. Investment banking companies that are constituted as non-banking financial companies are
regulated operationally by the RBI under sections 45H to 45QB of Reserve Bank of India Act,
1934. Under these sections RBI is empowered to issue directions in the areas of resources
mobilization, accounts and administrative controls.
5. Functionally, different aspects of investment banking are regulated under the Securities and
Exchange Board of India Act, 1992 and guidelines and regulations issued there under.
6. Investment Banks that are set up in India with foreign direct investment either as joint
ventures with Indian partners or as fully owned subsidiaries of the foreign entities are
governed in respect of the foreign investment by the Foreign Exchange Management Act,
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1999 and the Foreign Exchange Management (Transfer or issue of Security by a person
Resident outside India) Regulations, 2000 issued there under as amended from time to time
through circulars issued by the RBI.
7. Apart from the above specific regulations relating to investment banking, investment banks
are also governed by other laws applicable to all other businesses such as – tax law, contract
law, property law, local state laws, arbitration law and the other general laws that are
applicable in India.
Underwriting activity in India is regulated under the SEBI Rules 1993 and SEBI regulations
1993. The regulatory framework of underwriting activity under the said rules and regulations
is summarized below:
Rule No.1 (Capital Adequacy requirement)
The existing capital adequacy prescribed by regulation 7(1) of the Regulations requires
minimum net worth of Rs 20 Lacs. Minimum net worth for a merchant banker has gone up
from Rs 100 Lacs to Rs 500 Lacs, while for a broker on The Stock Exchange Mumbai (BSE)
it is Rs 50 Lacs and on National Stock Exchange (NSE) it is Rs 200 Lacs. The method of
computation of net worth for each category is distinct from each other. Underwriting being a
financial risk, it is imperative for an underwriter to have adequate net worth to finance the risk
The Committee recommends that the minimum net worth requirement for underwriters may
be increased to Rs 100 Lacs. The underwriting capability of merchant bankers, brokers and
entities registered with other regulators will be subject to satisfaction of norms prescribed
herein. Underwriters shall submit to the lead manager a certificate from a chartered
Accountant certifying its net worth and fructified outstanding obligations every time it seeks
underwriting.
Analysis
As it is a risk involved business it's better for an underwriter to be with more liquid assets so
that if he is not in a position to promote all the shares he has promised to underwrite he
should be in a position to buy those shares.
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Rule No 2 (Computation of net worth)
The current definition of net worth as per explanation to regulation 7 includes paid up capital
and free reserves. It is felt that the current definition is not explicit and specific. For the
purposes of underwriting, the liquidity of the underwriter at any point of time is more critical
than net worth as on a particular date. The current definition does not give adequate
weightage to tangible and liquid assets of the underwriters. Options such as computing net
tangible asset or obtaining certificate of liquidity from auditors are available.
Analysis
Liquidity is important to a factor to an underwriter because he is involved in high risk

business and he should be in a position to subscribe the promised amount of shares at any
time if he fails to promote it.
The definition of net worth may be tightened and computed more explicitly as follows:
Net worth = Capital + Free Reserves

Less: Non-allowable assets viz.,
(a) Fixed assets
(b) Unlisted securities
(c) Bad deliveries
(d) Doubtful debts and advances
(e) Prepaid expenses, losses
(f) Intangible assets
(g) 30% of value of marketable securities and 30% of value of pledged securities net of
outstanding liability.
Rule No.3 (Limit on underwriting obligations)
The current limit of maximum 20 times net worth as per regulation 15(2) of
Regulations was believed to be high in view of the fact that net worth was not
explicitly defined.
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Analysis:
It was recognized that capital adequacy requirements of financial intermediaries has been
consistently revised upwards in last few years. It was also appreciated that underwriters with
higher net worth would be able to arrange financing in a more efficient manner than those
with a low net worth. On the other hand, underwriters with low net worth and higher multiple
stand a greater risk of default. Therefore, proposal to introduce slabs for limits on
underwriting obligations based on net worth of the underwriter was found appropriate. The
leverage should be linked to net worth. The following slabs may be adopted for determining
the leverage for underwriters. Net worth Multiple of net worth Between Rs 1cr to Rs 5crs.
Rule No 4 (Subscription in case of devolvement)
The existing limit of 30 days for subscription/procuring subscription by underwriter as per

model agreement is at a variance with limit of 45 days as per regulation 15(3) of the
Regulations.
Analysis:
Besides, both the limits are antiquated in the current environment when allotment in fixed
price issue gets done within 30 days from issue closure and in book building within 15 days
from bid closure. There is a need to review the existing time frame.
However, the revised time frame has to also take into the account the time required for the
registrar to the issue to co-ordinate with the bankers to the issue in order to determine the
extent of under-subscription and the underwriters' obligation. The figures are then to be
authenticated by an auditor before notices can be sent out to the underwriters. After receiving
the notices, the underwriters should be allowed a fair period of time to fund subscription or
procure subscription.
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Rule No 5 (Registration criteria and registration fees)
According to rule 3(1) of the Regulations, no person shall act as an underwriter unless he
holds a certificate granted by SEBI under the Regulations. One of the criteria for considering
application for registration as underwriter, as per regulation 6 and Form A of the Regulations,
is necessary infrastructure and past experience in underwriting. However, adequate
infrastructure and experience are not clearly defined. Neither do these criteria ensure
commitment towards underwriting. It is believed that underwriting involves a financial risk
where adequate net worth is critical rather than adequate infrastructure and experience.
Analysis
Most of the underwriters today are already registered with SEBI for some activity or the
other. They may be merchant bankers, stock brokers, mutual funds etc. They are already
regulated by SEBI for their actions under different regulations. Seeking one more registration
for the same entity, as an underwriter, adds to the administrative burden of SEBI. Such
separate registration may be avoided. There could be few underwriters such as banks,
financial institutions etc who may not be registered and regulated by SEBI. However they are
registered and regulated by some other regulators for e.g. RBI in case of banks and
institutions. In such cases the respective regulator could monitor the underwriting activities as
part of its regular monitoring of various other activities and if required report its findings to
SEBI for necessary action. Thus registration with any regulator would be an eligibility criteria
but the underwriter will be governed by the Regulations. In case of any default by the
underwriter, the lead managers will report the same to SEBI through the issue monitoring
reports. Thus the ability for action against underwriters continues with SEBI.
Rule No 6
Agreement with clients Every underwriter shall enter into an agreement referred to in clause
(b) of rule 4 with each body corporate on whose behalf he is acting as underwriter and the
said agreement shall, amongst other things, provide for the following, namely :-
(i) the period for which the agreement shall be in force;
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(ii) the amount of underwriting obligations;
(iii) the period, within which the underwriter has to subscribe to the issue after being
intimated by or on behalf of such body corporate;
(iv) the amount of commission or brokerage payable to the underwriter;
(v) details of arrangements, if any, made by the underwriter for fulfilling the underwriting
obligations.
Analysis
The agreement acts as a future security to both the underwriter and the client company and
also it creates a legal binding between them. So that it makes mandatory to both the parties to
execute their responsibilities in a proper manner.
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Functions of Investment Banking:
Investment banks have multilateral functions to perform. Some of the most important
functions of investment banking can be jot down as follows:
o Investment banking help public and private corporations in issuing securities in the
primary market, guarantee by standby underwriting or best efforts selling and foreign
exchange management. Other services include acting as intermediaries in trading for
clients.
o Investment banking provides financial advice to investors and serves them by assisting
in purchasing securities, managing financial assets and trading securities.
o Investment banking differs from commercial banking in the sense that they don't
accept deposits and grant retail loans. However the dividing line between the two
fraternal twins has become flimsy with loans and securities becoming almost
substitutable ways of raising funds.
o Small firms providing services of investment banking are called boutiques. These
mainly specialize in bond trading, advising for mergers and acquisitions, providing
technical analysis or program trading.
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The India Scenario
In India, though the existence of this branch of financial services can be traced to over 3
decades, investment banking was largely confined to merchant banking services. The
forerunners of banking in India were the foreign banks. In the year 1967 Grind lays bank
(now merged with standard chartered bank in India) began investment banking operations
with license from RBI followed by Citibank in 1970. It was in 1972 that the Banking
Commission report asserted the need for merchant banking services in India by the public
sector banks of India. SBI set up its merchant banking division in 1972 followed by Bank of
India, central bank of India, Bank of Baroda, Syndicate bank, Punjab National Bank, Canara
Bank. ICICI was the first financial institution to set up merchant banking division in 1973
next were IFCI and IDBI in year 1992.By the mid eighties and early nineties, most of the
merchant banking divisions of public sector spun off as a separate subsidiaries.
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Major Investment Bankers
Global Investment Banks
 Bank of America/Merrill Lynch  Goldman Sachs

 Barclays Capital  JPMorgan Chase
 BNP Paribas  Morgan Stanley

 Citigroup  Nomura Securities
 Credit Suisse  UBS
 Deutsche Bank  Wells Fargo Securities
Major Indian Investment Banks
 Bajaj Capital  SBI Capital Markets

 Barclays India  IDFC
 Enam Financial Consultants Ltd.  Yes Bank
 Cholamandalam Investment & Finance Company  SBI Capital Markets Ltd.
 Kotak Investing Banking (Kotak Mahindra Capital Company)  JM Morgan Stanley Ltd.
 Tata Investment Corporation Limited (TICL)  DSP Merrill Lynch Ltd.
 Industrial Development Bank of India (IDBI Capital Markets  ICICI Securities Ltd.
Ltd.)
 Industrial Finance Corporation of India (IFCI)  Avendus
Leading Indian Universal Banks & their Investment Banking Affiliates
Industrial ICICI Bank State Bank Kotak UTI Bank Punjab

Development Ltd. of India Mahindra Ltd. National
Bank of India Ltd. Bank Ltd. Bank
IDBI Capital ICICI SBI Capital Kotak UTI PNB Gilts
Markets Ltd. Securities Markets Ltd. Mahindra Securities Ltd.
Ltd. Capital Ltd.
Company
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Service Portfolio of Indian Investment Banks
Core Services:
 Merchant Banking, Underwriting and Book Running
The primary market which was quite small in India, was revitalized with the abolition of the
Capital Issues (Control) Act 1947 and the passing of the Securities and Exchange Board of
India Act, 1992. The SEBI functions as the regulator for the capital markets similar to its
counterpart, the SEC in USA. SEBI vide its guidelines dated June 11, 1992 introduced free
pricing of securities in public offers for the first time in India. Over the last ten years, there
have been two distinct phases of primary market boom –the first between 1992-1996 and the
second between 1998-2001. The third wave of primary market issues could shape up in the
near future. This market is very closely regulated by SEBI. In the days when the public offers
market is very vibrant, this area of service forms the main activity for most Indian investment
banks. In the past few years, though public offers have been very few, the private placement
market especially in the debt segment has been very active and has served as an important
source of funds for prime-rated corporate. Notable among such offerings are related privately
placed debentures issued by public sector corporations and leading private companies.
Financial institutions have been raising funds via the public offers and hand holding them in
the private placements as well. Once the private placement markets also come under
regulatory stipulations, investment banks would have a wider role to play in such issuances.
 Mergers and Acquisitions Advisory
The mergers and acquisitions industry was pretty nascent in India prior to 1994 and continues
to be tiny compared to the global scale of such transactions. However, two main features that
have given a big push to this industry are:
 The forces of liberation and globalization that have forced the Indian industry to
consolidate.
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 The institutionalization of corporate acquisitions by SEBI through its guidelines,
popularly known as the Takeover Code.
One of the cream activities of investment banks has always been M&A advisory. The larger
investment banks specialize in M&A as a core activity. While some of them provide pure
advisory services in relation to M&A, others holding valid merchant banking licenses from
SEBI also manage the open offers arising out of such corporate events.
 Corporate Advisory
Investment banks in India also have a large practice in corporate advisory services relating to
project financing, corporate restructuring, capital restructuring through equity repurchases
(including management of buyback offers under section 77A of the Companies Act, 1956),
raising private equity, structuring joint-ventures and strategic partnerships and other such
value added specialized areas.
Allied Business:
 Securities Business
Most of the universal banks such as ICICI, IDBI and Kotak Mahindra have their broking and
distribution firms in both the equity and debt segments of the secondary market. In addition
several other investment banks such as the IL & FS and pure investment banks such as DSP
Merrill Lynch and JM Morgan Stanley have a strong presence in this area of activity. In the
past few years, the derivatives segment has been introduced in Indian capital market and this
provides an additional avenue of specialization for investment banks. Derivatives trading, risk
management and structured products offerings are the new segments that are fast becoming
the areas of future potential for Indian investment banks. The securities business also provides
extensive research offerings and guidance to investors. The secondary market services cater to
both the institutional and non-institutional investors.
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 Asset Management Services
Most of the top financial groups in India which have investment banking businesses such as
the –ICICI, the IDBI, Kotak Mahindra, DSP Merrill Lynch, JM Morgan Stanley, SBI and IL
& FS also have their presence in the asset management business through separate entities. As
per the three layer structure propounded by SEBI, the parent organization acts as the sponsor
of the fund and the fund itself is constituted as a trust. The trust is managed by an asset
management company and a separate trustee company which oversees the interests of the unit
holders in the Mutual Fund. The whole structure has as arm‟s length distance from the
sponsor‟s other businesses and entities.
 Wealth Management Services (Private Banking)
Many reputed investment banks nurture a separate service segment to manage the portfolio of
high net worth individuals, households, trusts and other types of non-institutional investors.
This can be structured either as a pure advisory service wherein the investment manager does
not have any access to the funds or as a fund management service wherein the investment
manager is given charge of the funds. In the former case, it becomes a non-discretionary
portfolio and in the latter case, it becomes a discretionary portfolio. Such activity is regulated
under the SEBI guidelines as already discussed. In other cases, wealth management may be
restricted to a research based activity wherein the investor is provided good investment
recommendations from time to time.
 Institutional Banking
Institutional investors have been a recent phenomenon in the Indian capital market, which till
then had the presence of a handful of public financial institutions such as the UTI and the
insurance companies. The term lending institutions such as the IDBI and IFCI did not
participate in secondary market dealing as a matter of policy. With the advent of
liberalization, there are presently a large number of domestic institutional investors in the
secondary market apart from approved foreign institutional investors. In addition, institutional
investments have risen significantly in the primary markets through venture capital and
private equity investments by investors in both the domestic and non-domestic categories.
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Several of the leading investment banks either have dedicated venture funds or private equity
funds that invest in primary market. In addition they make proprietary investments in the
secondary market through their dealing and market activities.
27
Merger & Acquisition
Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate
finance world. Every day, Wall Street investment bankers arrange M&A transactions, which
bring separate companies together to form larger ones. When they're not creating big
companies from smaller ones, corporate finance deals do the reverse and break up companies
through spinoffs, carve-outs or tracking stocks.
Not surprisingly, these actions often make the news. Deals can be worth hundreds of millions,
or even billions, of dollars. They can dictate the fortunes of the companies involved for years
to come. For a CEO, leading an M&A can represent the highlight of a whole career. And it is
no wonder we hear about so many of these transactions; they happen all the time. Next time
you flip open the newspaper‟s business section, odds are good that at least one headline will
announce some kind of M&A transaction.
Sure, M&A deals grab headlines, but what does this all mean to investors? To answer this
question, this tutorial discusses the forces that drive companies to buy or merge with others,
or to split-off or sell parts of their own businesses. Once you know the different ways in
which these deals are executed, you'll have a better idea of whether you should cheer or weep
when a company you own buys another company - or is bought by one. You will also be
aware of the tax consequences for companies and for investors.
The Main Idea
One plus one makes three: this equation is the special alchemy of a merger or an acquisition.
The key principle behind buying a company is to create shareholder value over and above that
of the sum of the two companies. Two companies together are more valuable than two
separate companies - at least, that's the reasoning behind M&A.
This rationale is particularly alluring to companies when times are tough. Strong companies
will act to buy other companies to create a more competitive, cost-efficient company. The
companies will come together hoping to gain a greater market share or to achieve greater
28
efficiency. Because of these potential benefits, target companies will often agree to be
purchased when they know they cannot survive alone.
Distinction between Mergers and Acquisitions
Although they are often uttered in the same breath and used as though they were synonymous,
the terms merger and acquisition mean slightly different things.
When one company takes over another and clearly established itself as the new owner, the
purchase is called an acquisition. From a legal point of view, the target company ceases to
exist, the buyer "swallows" the business and the buyer's stock continues to be traded.
In the pure sense of the term, a merger happens when two firms, often of about the same size,
agree to go forward as a single new company rather than remain separately owned and
operated. This kind of action is more precisely referred to as a "merger of equals." Both
companies' stocks are surrendered and new company stock is issued in its place. For example,
both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new
company, DaimlerChrysler, was created.
In practice, however, actual mergers of equals don't happen very often. Usually, one company
will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim
that the action is a merger of equals, even if it's technically an acquisition. Being bought out
often carries negative connotations, therefore, by describing the deal as a merger, deal makers
and top managers try to make the takeover more palatable.
A purchase deal will also be called a merger when both CEOs agree that joining together is in
the best interest of both of their companies. But when the deal is unfriendly - that is, when the
target company does not want to be purchased - it is always regarded as an acquisition.
Whether a purchase is considered a merger or an acquisition really depends on whether the

purchase is friendly or hostile and how it is announced. In other words, the real difference lies
in how the purchase is communicated to and received by the target company's board of
directors, employees and shareholders.
29
Biggest Mergers & Acquisitions
Tata Steel-Corus $12.2 billion

Vodafone-Hutchison Essar $11.1 billion
Hindalco-Novelis $6 billion
Ranbaxy-Daiichi Sankyo $4.5 billion
ONGC-Imperial Energy $2.8 billion
NTT DoCoMo-Tata Tele $2.7 billion
HDFC Bank-Centurion Bank of Punjab $2.4 billion
Tata Motors-Jaguar Land Rover $2.3 billion
Sterlite-Asarco $1.8 billion
Suzlon-RePower $1.7 billion
RIL-RPL merger $1.68 billion
30
Role of Investment Banker in M&A
Investment banker plays an important role in M&A. They help the merging companies in
many ways like.
 They help in organizing mergers.

 They help target companies to develop and implement defensive tactics.
 They help in valuing the target company.
 They help in financing mergers and,
 They invest in stock of firms which are likely to merge.
Investment bankers gain huge profits through these merger related activities.
 Organizing Mergers: Suppose steel manufacturers interested in merging with one

of its suppliers such as iron or coal mining firm. Investment bankers help
steel manufactures to acquire its suppliers.
 Developing Defensive Tactics: In order to avoid takeover by big firms, a target

firm make use of Investment banking firm and a law firm. Some of the defensive
strategies are Golden parachutes, Poison pills, white square, white Knights etc.
 Establishing a Fair Value: The investment banks value the target company fairly.
 Financing Mergers: If acquiring firms do not have enough fund of cash, then there
is need for searching source of funds. (FYI: Earlier in 1980, Junk bonds were the
only source for financing mergers and the primary developer for those were Drekel
Burnham Lambert)
 Arbitrage Operations: Here it refers to buying and selling of securities in

different markets at different prices and taking risk free return.
31
Valuation
Investors in a company that are aiming to take over another one must determine whether the
purchase will be beneficial to them. In order to do so, they must ask themselves how much the
company being acquired is really worth.
Naturally, both sides of an M&A deal will have different ideas about the worth of a target
company: its seller will tend to value the company at as high of a price as possible, while the
buyer will try to get the lowest price that he can.
There are, however, many legitimate ways to value companies. The most common method is
to look at comparable companies in an industry, but deal makers employ a variety of other
methods and tools when assessing a target company. Here are just a few of them:
1. Comparative Ratios - The following are two examples of the many comparative
metrics on which acquiring companies may base their offers:
o Price-Earnings Ratio (P/E Ratio) - With the use of this ratio, an acquiring
company makes an offer that is a multiple of the earnings of the target
company. Looking at the P/E for all the stocks within the same industry group
will give the acquiring company good guidance for what the target's P/E
multiple should be.
o Enterprise-Value-to-Sales Ratio (EV/Sales) - With this ratio, the acquiring

company makes an offer as a multiple of the revenues, again, while being
aware of the price-to-sales ratio of other companies in the industry.
2. Replacement Cost - In a few cases, acquisitions are based on the cost of replacing the
target company. For simplicity's sake, suppose the value of a company is simply the
sum of all its equipment and staffing costs. The acquiring company can literally order
the target to sell at that price, or it will create a competitor for the same cost.
Naturally, it takes a long time to assemble good management, acquire property and get
the right equipment. This method of establishing a price certainly wouldn't make much
32
sense in a service industry where the key assets - people and ideas - are hard to value
and develop.
3. Discounted Cash Flow (DCF) - A key valuation tool in M&A, discounted cash flow
analysis determines a company's current value according to its estimated future cash
flows. Forecasted free cash flows (net income + depreciation/amortization - capital
expenditures - change in working capital) are discounted to a present value using the
company's weighted average costs of capital (WACC). Admittedly, DCF is tricky to
get right, but few tools can rival this valuation method.
What to Look For?
It's hard for investors to know when a deal is worthwhile. The burden of proof should fall on
the acquiring company. To find mergers that have a chance of success, investors should start
by looking for some of these simple criteria:
 A reasonable purchase price - A premium of, say, 10% above the market price seems
within the bounds of level-headedness. A premium of 50%, on the other hand, requires
synergy of stellar proportions for the deal to make sense. Stay away from companies
that participate in such contests.
 Cash transactions - Companies that pay in cash tend to be more careful when
calculating bids and valuations come closer to target. When stock is used as the
currency for acquisition, discipline can go by the wayside.
 Sensible appetite – An acquiring company should be targeting a company that is

smaller and in businesses that the acquiring company knows intimately. Synergy is
hard to create from companies in disparate business areas. Sadly, companies have a
bad habit of biting off more than they can chew in mergers.
Mergers are awfully hard to get right, so investors should look for acquiring companies with a
healthy grasp of reality.
33
ABOUT FIRM
Special Study on
J.M.Financial Services
JM Financial is an integrated financial services group, offering a wide range of services to

significant clients that include corporations, financial institutions, high net-worth individuals
and retail investors.
The Group has interests in investment banking, institutional equity sales, trading, research and
broking, private and corporate wealth management, equity broking, portfolio management,
asset management, Non-Banking Finance Company activities, private equity and asset
reconstruction.
JM Financial Services Private Ltd is the dedicated financial services arm of the JM Financial
Group . They are one of the largest brokerage firms in India, offering comprehensive
investment advisory and investment management services to institutions, banks, corporate,
ultra high net-worth individuals and Family offices.
With more than three decades of experience & expertise in managing wealth, they offer their
clients guidance to grow, protect & transfer their wealth.
An exclusive level of personal attention, research capabilities and in-depth capital market
expertise enables them to design and execute customized investment solutions for their
clients. They provide comprehensive financial planning, research-based investment consulting
services and execution capabilities
They service their investors through three distinct businesses, which draws on the full
spectrum of the Group‟s resources; research base and expertise to generate investment ideas
34
for their clients. These solutions incorporate a wide range of financial products to meet
individual client needs, both short-term and long-term.
They have a strong network of more than 25,000 IFAs spread across India.
They facilitate client transactions with a diverse group of financial institutions, investment
funds, governments and individuals, trading of and investing in fixed income and equity
products and derivatives on these products.
Vision
To be the most trusted partner for every stakeholder in the financial world.
35
Products
INVESTMENT BANKING
JM Financial Consultants Private Limited, the JM Financial group‟s Investment Banking

arm, is one of India‟s most respected domestic investment banks. They provide a wide range
of services – raising capital, mergers, acquisitions, restructuring, financial advisory and
private equity - to a diversified client base of Indian corporate in the domestic and
international capital markets. Since inception they have pioneered several innovations in the
Indian capital markets in the areas of capital structuring, financial instruments and marketing
strategies. They have made a substantial contribution to the overall development of the Indian
capital markets as well as the landscape of mergers and acquisitions in India.
Over the years, they have won many awards for their advisory and execution capabilities.
Their philosophy of forging long-term partnerships with clients is reflected in their long and
strong relationships with India‟s leading business houses.
INVESTMENT ADVISORY
JM Financial Services Private Ltd (JMFS), the dedicated investment advisory arm of the JM
Financial Group is one of the most respected brokerage firms in India. They focus on
investment advisory and management services to corporate, ultra high net-worth individuals,
family offices, institutions and banks.
With decades of experience and expertise in managing wealth, they provide comprehensive
financial planning, research-based investment consulting services and execution capabilities.
They offer a wide range of product and services to their clients ranging from Equity,
Derivatives, and Portfolio Management Services to Mutual Funds & Fixed Income Products
Distribution. They are among the largest distributors of third party products (Mutual
funds/IPO).
36
Business Segments
They are organized in three main divisions: Wealth Management Group, Equity Brokerage
Group and Independent Financial Advisory Group, which draw on the full spectrum of the
Group‟s resources; research base and expertise to generate investment ideas for their clients
and develop customized investment solutions for their clients.
They have a strong network of more than 450 outlets spread across the country and are
present in 130 locations.
JM Financial Services Pvt. Ltd. has been awarded "Best Retail Broking House" and "Fastest
Growing Equity Broking House (Large Firms)", by BSE- Dun & Bradstreet for 2010.
INSTITUTIONAL SECURITIES
JM Financial Institutional Securities Private Limited offers quality research and analysis-
based broking services to both domestic and offshore institutional clients.
A dedicated research team provides significant insights through independent, in depth

research and analysis on quality growth companies across the market- capitalization spectrum
. The team publishes detailed reports across firms and sectors, pertaining to the Indian
economy, corporate and related market intelligence. The sales team works closely with the
research team to provide timely dissemination of information and identify superior investment
opportunities to global institutional investors.
They offer superior research-based broking services to institutional clients, both domestic and
offshore.
Their services revolve around three key factors:
o High quality research with a focus on new stock ideas

o Intensive client servicing to keep their customers abreast and ahead of key corporate/
Market trends
37
o Efficient trade execution to give their clients the best price possible and hassle-free
post trade settlements
JM Financial Institutional Securities Private Limited is a corporate member of both the

Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
ASSET MANAGEMENT
JM Financial Asset Management Private Limited, JM Financial group‟s Asset

Management Company (AMC) for its mutual fund business, commenced operations in
December 1994. JM Financial Mutual Fund was one of India's first private sector mutual
funds that simultaneously launched three funds - JM Liquid Fund (now JM Income Fund), JM
Equity Fund and JM Balanced Fund. Today, JM Financial Mutual Fund offers a bouquet of
funds that cater to the diverse needs of both its institutional and individual investors.
Their mission is to manage risk effectively while generating top quartile returns across all
product categories. They believe in cultivating investor loyalty and are focused on helping
their investors realize their investment goals, through prudent advice, judicious fund
management, impeccable research, and strong systems of managing risk scientifically.
PRIVATE EQUITY
JM Financial Investment Managers Limited is the asset management company for the
private equity fund business of JM Financial group.
Their private equity fund, JM Financial India Fund is a broad based, multi-sector US$ 225
million fund, which seeks to invest in dynamic, fast growing, unlisted domestic companies
looking for growth capital. The Fund, whose focus sectors include Retail/FMCG,
Pharmaceuticals/ Healthcare, Manufacturing, Financial Services, IT/BPO services, Logistics
and Education, has so far closed four investments:
 Genesis Colors, in the high-end fashion retail segment
 Sona group, an auto components company
 International Tractors, a leading farm-equipment manufacturer
38
 Spandana, a microfinance organisation
 Lexicon Publishing Services Private Limited (Pre-Media Global), knowledge
processing outsourcing company
 Samson Maritime Ltd which offers offshore logistics and support services
SPECIAL SITUATIONS FUND
JM Financial Ventures Limited is managed by a focused group of investment professionals

housed within JM Financial Investment Managers Limited. The division invests across listed
equities, pre-IPO and venture capital opportunities. It aims to provide flexible capital to
entrepreneurs while providing them operational freedom and support in their capital markets
journey.
REAL ESTATE FUND
JM Financial group‟s Infinite India Investment Management, a 50:50 joint venture with
SRS Fund, is among the largest dedicated real estate investment firms in India with plans to
invest $400 million, primarily in the residential, commercial and retail sectors. Some of our
recent investments include:
 A 32 acre mixed-use development in Mumbai

 A 1.8 million sq ft IT park in Chennai
 0.6 million square feet retail site in Vishakhapatnam
 1 million sq ft group housing projects in Kochi and Trivandrum
 entity level investments in leading real estate and hospitality players in Bangalore,
Kolkata and Delhi
They focus on building strong partnerships with leading local developers, thereby getting
exclusive access to their ongoing projects while providing value addition by way of capital
markets strategy, business development, design and project management.
39
ASSET RECONSTRUCTION
JM Financial Asset Reconstruction Company Private Limited is the asset reconstruction and
securitisation business of the JM Financial Group. The company focusses on acquisition of
non-performing and distressed assets from banks and financial institutions. The business
strategy is a mix of both portfolio acquisitions as well as single credits. The company is sector
neutral across all geographical locations.
COMMODITIES BROKING
JM Financial Commtrade Limited, the commodities trading business of the Group, has a
team of experienced research analysts who track and provide advice to clients on bullion, base
metals, crude and other soft commodities. The business with its strong research base and
excellent execution platform is well positioned to be a preferred broker for corporate and high
net-worth individuals. JM Financial Commtrade Limited is a member of MCX and NCDEX.
NON BANKING FINANCIAL PRODUCTS
JM Financial Products Limited is a non-deposit accepting non-banking finance company

(NBFC) registered with the Reserve Bank of India. They are engaged in borrowing and
lending activities including loan against securities, IPO funding, ESOP financing. The
company is one of the largest players in the securities based lending business.
JM Financial Products Limited, a wholly owned subsidiary of JM Financial Ltd, has recently
commenced the business of securitisation by investing in mezzanine securitisation tranches.
JM Financial Products Limited enjoys the highest short-term credit rating of P1+ from
CRISIL.
40
Products & Services:
IPO Funding
The company started its financing activities with IPO financing and is an active player in the
IPO financing segment catering to the high net worth individual‟s category. The business
draws upon JM Financial Group‟s expertise of successfully lead managing several public
issues. Further, JM Financial Group is among the top two distributors of public issues to
corporate, high net worth individuals and retail investors in India. JM Financial Group also
ties up sub-syndicate members to market the public issues.
Security Backed Financing - Loan Against Shares/Margin Funding (LAS)
The business of loan against shares plays an important role in the company‟s business strategy
along with IPO Funding.
Mutual Fund Financing
JM Financial Group is one of the largest distributors of mutual funds. Given the Group‟s large
HNI customer base which invests in mutual funds as a natural progression, the company also
does funding towards purchase of mutual fund units.
ESOP Financing
The company also leverages on the Group‟s strong corporate relations and investment
banking expertise that help identify business opportunities for ESOP financing.
Promoter Funding and Acquisition Financing
JM Financial Consultants, the investment banking arm of JM Financial Group advises several
clients on mergers and acquisitions thereby presenting a plethora of business opportunities for
JM Financial Products Limited.
41
FIXED INCOME DIVISION
JM Financial Securities Private Limited is engaged in the origination and distribution of

debt (local, foreign and structured) for leading corporates, public sector companies, banks and
institutional investors. The division undertakes local and foreign currency debt financing
solutions through the origination and structuring teams. It also undertakes short term
borrowings (commercial paper and non-convertible debentures) for the Group‟s rated entities.
In addition, the division deals with trading and retailing of PSU bonds, state government
guaranteed bonds, central government securities and state development loans.
42
Balance Sheet
Particulars ------------------- in Rs. Cr. -------------------

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07
Sources Of Funds
Total Share Capital 74.97 74.97 74.97 29.98 29.98
Equity Share Capital 74.97 74.97 74.97 29.98 29.98
Share Application Money 0.00 0.00 0.00 0.00 0.00
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 1,542.83 1,578.83 1,571.40 1,623.46 351.02
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
Net worth 1,617.80 1,653.80 1,646.37 1,653.44 381.00
Secured Loans 0.09 0.30 0.00 0.00 0.00
Unsecured Loans 0.00 0.00 0.28 0.15 0.00
Total Debt 0.09 0.30 0.28 0.15 0.00
Total Liabilities 1,617.89 1,654.10 1,646.65 1,653.59 381.00
Application Of Funds
Gross Block 3.56 4.01 2.34 1.90 1.18
Less: Accum. Depreciation 1.41 1.28 0.62 0.37 0.27
Net Block 2.15 2.73 1.72 1.53 0.91
Capital Work in Progress 0.00 0.11 0.00 0.04 0.00
Investments 1,507.96 1,556.02 1,524.08 1,521.43 350.65
Inventories 0.00 0.00 0.00 0.00 0.00
Sundry Debtors 0.00 0.00 0.00 0.00 0.00
Cash and Bank Balance 1.18 0.90 0.85 0.48 0.82
Total Current Assets 1.18 0.90 0.85 0.48 0.82
Loans and Advances 158.53 145.40 103.75 101.65 48.81
Fixed Deposits 114.04 136.90 150.68 238.65 0.00
Total CA, Loans & Advances 273.75 283.20 255.28 340.78 49.63
Deferred Credit 0.00 0.00 0.00 0.00 0.00
Current Liabilities 119.17 147.22 118.96 122.37 2.65
43
Provisions 46.81 40.73 15.46 87.81 17.55
Total CL & Provisions 165.98 187.95 134.42 210.18 20.20
Net Current Assets 107.77 95.25 120.86 130.60 29.43
Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.00
Total Assets 1,617.88 1,654.11 1,646.66 1,653.60 380.99
Contingent Liabilities 3.75 4.28 4.27 3.80 3.58
Book Value (Rs) 21.58 22.06 21.96 551.15 127.00
44
Profit & Loss Statement
Particulars ------------------- in Rs. Cr. -------------------

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07
Income
Sales Turnover 43.72 95.23 24.46 33.64 39.3
Excise Duty 0.00 0.00 0.00 0.00 0.00
Net Sales 43.72 95.23 24.46 33.64 39.3
Other Income 0.4 1.17 -1.74 1,736.77 0.06
Stock Adjustments 0.00 0.00 0.00 0.00 0.00
Total Income 44.12 96.4 22.72 1,770.41 39.4
Expenditure
Raw Materials 0.00 0.00 0.00 0.00 0.00
Power & Fuel Cost 0.00 0.00 0.00 0.00 0.00
Employee Cost 14.22 33.83 4.44 3.68 1.29
Other Manufacturing Expenses 0.00 0.00 0.00 0.00 0.00
Selling and Admin Expenses 7.98 3 1.69 10.94 1.21
Miscellaneous Expenses 1.01 10.16 3.13 3.83 1.13
Preoperative Exp Capitalized 0.00 0.00 0.00 0.00 0.00
Total Expenses 23.21 46.99 9.26 18.45 3.63
Operating Profit 20.51 48.24 15.2 15.19 35.7

PBDIT 20.91 49.41 13.46 1,751.96 35.8
Interest 0.03 0.04 0.04 0.05 0.00
PBDT 20.88 49.37 13.42 1,751.91 35.8
Depreciation 0.62 0.66 0.27 0.1 0.03
Other Written Off 0.00 0.00 0.00 0.00 0.00
Profit Before Tax 20.26 48.71 13.15 1,751.81 35.7
Extra-ordinary items -10.54 -0.04 -0.02 0.01 0.00
PBT (Post Extra-ordinary 9.72 48.67 13.13 1,751.82 35.7
Items)
Tax -0.31 1.35 5.17 391.63 0.42
Reported Net Profit 10.04 47.31 7.97 1,360.16 35.3
Total Value Addition 23.21 47 9.26 18.46 3.62

Preference Dividend 0.00 0.00 0.00 0.00 0.00
Equity Dividend 44.99 37.49 15 75 15
Corporate Dividend Tax 1.05 2.39 0.05 12.75 2.55
Per share data (annualized)
45
Shares in issue (lakhs) 7,497.83 7,497.83 7,497.83 300 300
Earning Per Share (Rs) 0.13 0.63 0.11 453.39 11.77

Equity Dividend (%) 60 50 20 250 50
Book Value (Rs) 21.58 22.06 21.96 551.15 127
46
Financial Ratio’s
Particulars March 11 March 10 March 09 March 08 March 07

Profitability Ratio
Return On Capital 1.24 2.87 0.91 1.09 -
Employed (%)
Return on Net Worth (%) 0.62 2.86 0.48 82.26 9.27
Gross Profit Margin (%) 45.51 49.95 61.04 44.81 -
Net Profit Margin 22.82 49.65 32.45 3706.57 89.67
Liquidity & Solvency Ratio’s
Current Ratio 1.65 1.51 1.90 1.62 2.46
Quick Ratio 1.65 1.50 1.89 1.62 2.43
Debt Equity Ratio - - - - -
Management Efficiency Ratio’s
Debtors Turnover Ratio - - - - -
Assets Turnover Ratio 14.43 27.25 10.47 17.67 33.40
47
Acquisition of Aditya Birla Nuvo over Pantaloons
Aditya Birla Nuvo is acquiring a controlling stake in Future Group's "Pantaloon Format"
business posts its demerger from Pantaloons Retail India Ltd. The transaction is likely to be
completed within 8-10 months, subject to the finalization of the scheme of arrangement, due
diligence and other requisite approvals
With this acquisition, Aditya Birla will have multiple brands, store formats and a complete
range across categories - casual wear, ethnic wear, formal wear, party wear and sportswear for
men, women and kids
According to the release on BSE, Pantaloon Retail will issue debentures to Aditya Birla Nuvo
worth R800Cr at mutually agreed terms, convertible in the equity shares of the resulting entity
i.e. Pantaloons Format Business. Pantaloon will demerge its Pantaloons Format business
through a court scheme of arrangement. Pantaloon will transfer the net assets of its business,
its apportioned debt of Rs.800Cr and debentures of Rs.800Cr to the resulting entity. After the
demerger, the debentures will be converted into equity shares of the resulting entity. Aditya
Birla will also make an open offer of a minimum 26% to the shareholders of the resulting
entity. Post open offer and conversion of debt into equity; Aditya Birla's holding in the
resulting entity will be a minimum of 50.01%.
Future Group laden with around R2500Cr on its books is exploring various options to pare
down its debt. The group which is present in food, fashion, home & consumer electronics and
lastly, non-core businesses like financial services is planning to consolidate the first two and
exit or minimise exposure in the other two segments
“On completion of the acquisition, the two entities „ABNL‟s Madura Fashion & Lifestyle‟
and „PRIL‟ will work closely as partners to derive operational synergies, in terms of back-
end, supply chain and many other important value drivers of the business. We are delighted to
have Mr. Kishore Biyani as our partner in the Pantaloons Format business. Furthermore, to
ensure continuity, the current management team will continue to run the business,” added Mr.
Birla.
48
The transaction will be executed as indicated:
 PRIL will issue debentures to ABNL worth Rs. 800 crore at mutually agreed terms,
convertible in the equity shares of the resulting entity i.e. Pantaloons Format business.
 PRIL will demerge its Pantaloons Format business through a court scheme of
arrangement. PRIL will transfer the net assets of its business, its apportioned debt of
Rs. 800 crore and debentures of Rs. 800 crore to the resulting entity. After the de-
merger, the debentures will be converted into equity shares of the resulting entity.
 ABNL will make an open offer of a minimum 26 per cent to the shareholders of the
resulting entity. After the listing of the resulting entity and on conversion of
debentures into equity, ABNL‟s holding in the resulting entity post-open offer shall be
a minimum of 50.01 per cent. The resulting entity will become a subsidiary of ABNL.
49
SPECIFIC PROBLEM IN SURVEY
When I visited J.M.Financial Services the employees there refused to give information on the
Acquisition of ADITYA BIRLA NUVO over PANTALOONS as it was confidential
information. They said that the deal is yet to happen & the information available on the
internet is the only source that is published. The above information of the acquisition is
collected from the internet.
The acquisition of ADITYA BIRLA NUVO over PANTALOONS is yet to take place so
limited information about the controlling stake & the transfer of assets is available.
50
CONCLUSION
Investment banking is a field of banking that aids companies in acquiring funds. In addition to
the acquisition of new funds, investment banking also offers advice for a wide range of
transactions a company might engage in.
Traditionally, banks either engaged in commercial banking or investment banking. In

commercial banking, the institution collects deposits from clients and gives direct loans to
businesses and individuals.
Investment banking is a particular form of banking which finances capital requirements of an

enterprise. Investment banking assists as it performs IPO‟s, private placement and bond
offerings, acts as broker and carries through mergers and acquisitions.
Given the scope for investment banking in India, the future looks bright for the industry as a
whole in India. Many more pure investment banks and advisory firms could convert
themselves into full service investment banks that would broaden the market and make the
service delivery much more efficient. In addition, the technological and market
developments shaping the capital market as discussed would also provide an added impetus
to growth of investment banking.
Better regulatory supervision and stricter enforcement of the code of conduct of market
intermediaries would ensure that better quality issuers come to the market and existing
issuers would follow enhanced standards of corporate governance. In the long run, all these
developments would ensure fair return to investors, and bring back investor support to the
market. This would augur well for the capital market in general and investment banking in
particular.
The fall from grace of investment bankers leading to a radical change in the financial
sector's landscape in advanced countries is a significant development having many lessons
for India too. Investment banking has been slow to develop in India. Unlike in the U.S.
where Depression era legislation segregated the two activities, banks here did not have any
legal constraints. However, there were certain 'non-banking' activities such as hire purchase
51
and leasing that could be done only by subsidiaries, which in course of time resembled the
bigger NBFCs which are important niche players. The main investment banking activities in
India are mergers, acquisitions, corporate finance and restructuring. Even though some
public sector banks are active in the field, the lion's share of the business appears to have
been grabbed by the big brokers acting as investment bankers, foreign banks and the
branches of the foreign investment banks. Interestingly many big investment banks have had
tie ups with broker-firms. Sensing the potential in India many of them had started venturing
out on their own.
The serious crisis in the U.S. has put paid to their plans in India. In many cases their
continuance in India seems to be in doubt. With all their well publicized failings, will the
erstwhile foreign investment banks continue to appeal to their major Indian clients? In the
last 'big bang' disinvestment, involving ONGC and others, none of the public sector
merchant banking subsidiaries had any role. The field was dominated entirely by foreign
investment banks. Arcelor Mittal was put together with the help of the (then) big players, all
international investment banks. The Tata-Corus deal and the Aditya Birla Group's forays
abroad were aided by foreign investment banks. It is too much to expect that India's public
sector merchant banking subsidiaries will fill the void. But they can learn important lessons
from the failure of investment banking abroad. One clear message for them is not to do a
'regulatory arbitrage' exploiting the lacuna in regulation.
52
REFERENCES
Web Reference:
 www.google.com
 www.scribd.com
 www.moneycontrol.com
 www.jmfinancial.in
 www.dealcurry.com
53

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Summer Project Report

DESAI PRANIT BALKRISHNA

Mr. NIKESH RUPAREL PROF. M. K. VERMA

Aruna Manharlal Shah Institute of

TO WHOMSOEVER IT MAY CONCERN

I take this opportunity to extend my sincere thanks to “BIRLA SUNLIFE INSURANCE”

I am thankful to Mr. NIKESH RUPAREL and all employees of BIRLA SUNLIFE

I would like to thanks to, Dr. J. K. SACHDEVA (DIRECTOR) {ARUNA MANHARLAL

DESAI PRANIT BALKRISHNA

Sr. No. Topics Page No.

OBJECTIVES OF THE PROJECT

The secondary data in this project is collected from the internet.

Role of Investment Bankers

Investment bankers function as intermediaries in financial transactions. They are experienced

The major roles include:

Mergers and Acquisitions

General Advisory Services

Advisory services include assignments such as strategic planning, business valuations,

Investment Banker & its Importance

Who needs an Investment Bank?

What to look for in an Investment Bank?

Ability to Work Quickly

Regulatory framework for investment banking

Rule No.1 (Capital Adequacy requirement)

Liquidity is important to a factor to an underwriter because he is involved in high risk

Net worth = Capital + Free Reserves

Rule No.3 (Limit on underwriting obligations)

Rule No 4 (Subscription in case of devolvement)

The existing limit of 30 days for subscription/procuring subscription by underwriter as per

(i) the period for which the agreement shall be in force;

Functions of Investment Banking:

The India Scenario

Major Investment Bankers

Global Investment Banks

 Bank of America/Merrill Lynch  Goldman Sachs

 BNP Paribas  Morgan Stanley

Major Indian Investment Banks

 Bajaj Capital  SBI Capital Markets

Leading Indian Universal Banks & their Investment Banking Affiliates

Industrial ICICI Bank State Bank Kotak UTI Bank Punjab

Service Portfolio of Indian Investment Banks

 Merchant Banking, Underwriting and Book Running

 Mergers and Acquisitions Advisory

 Wealth Management Services (Private Banking)

Merger & Acquisition

The Main Idea

Distinction between Mergers and Acquisitions

Whether a purchase is considered a merger or an acquisition really depends on whether the

Tata Steel-Corus $12.2 billion

Role of Investment Banker in M&A

 They help in organizing mergers.

 Organizing Mergers: Suppose steel manufacturers interested in merging with one

 Developing Defensive Tactics: In order to avoid takeover by big firms, a target

 Arbitrage Operations: Here it refers to buying and selling of securities in

o Enterprise-Value-to-Sales Ratio (EV/Sales) - With this ratio, the acquiring

What to Look For?

 Sensible appetite – An acquiring company should be targeting a company that is

JM Financial is an integrated financial services group, offering a wide range of services to

JM Financial Consultants Private Limited, the JM Financial group‟s Investment Banking

A dedicated research team provides significant insights through independent, in depth

Their services revolve around three key factors:

o High quality research with a focus on new stock ideas

JM Financial Institutional Securities Private Limited is a corporate member of both the