Oh really?

Cheap valuations augur well for M&A – Business Standard.

Oh, really? Ask who is willing to sell at these valuations. My database has at least a 100 companies that could do well with some capital infusion right now. I have also identified moneybags that could be either strategic industry leaders or private equity financiers. But sellers are lazybones. They still think their stock should be valued at pre-january 08 valuations and it’s just the overall down sentiment that drove down their stock prices.

You can do nothing but wait for them to get real. In the process, the buyers that I had earlier at much higher valuations have now revised their buy price. Who is suffering? Starved of liquidity, their businesses languish eroding their value further. It’s getting harder to find buyers as each day goes by.

When I read such headlines, I search for its author to see if that’s someone I know. If it is, I’d certainly like her to check out a few I-bankers and private equity managers and present their honest views as well.

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Buying a shell calls for skill

Heard this on the grapevine a few days back from my deal sourcing network. Mrs.Radhika Saratkumar, Southern Film and TV personality and holding over 51% founding stake in Radaan Mediaworks is desirous of diluting her stake. As usual I began my initial scanning and looked up the company, its business and operational framework. The company has established a formidable reputation as leading southern production house and Ms.Radhika is known to be a very balanced person with whom artists love to work with unlike Ekta Kapoor who is known to be quite domineering.

But then take Ms.Radhika out of the game, the company loses its radiance. She is the creative centre of gravity as far as its operations are concerned, which is production of TV soaps mainly for the southern audience. A couple of media investors whom I had talked to felt it could be a good buy if Ms.Radhika agrees to continue assisting the business. But creativity has to come from heart and after she cashes out, you can’t expect the same level of inspired originality that has been the hallmark of her work so far.

Later I heard, Ramesh Vangal of Katra group with diverse business interests is eying that stake. May be he has an ace up his sleeve.

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Rating a crater

The more people working on an M&A transaction, the higher the likelihood the deal is a dog. This is doubly true where one of the Big Four and a Credit Rating agency team is involved.

A Year after US hedge fund DB Zwirn acquired a significant stake in Chennai-based NBFC (non-banking finance company) Dhandapani Finance, it has spotted a crater in the company’s balance sheet. Since the hole is big enough to erode Dhandapani’s capital, Zwirn will now have to look at ways to either recapitalize the balance sheet or plan an exit – as per this report.

When Zwirn had picked up 35% stake, it had appointed the management consultancy firm KPMG to carry out the due-diligence. Apparently KPMG did not find anything materially amiss then. Being a deposit-taking NBFC, Rating agency Crisil had on December rated its fixed deposit at FA+/stable. Fun is, the stake of the hedge fund in the NBFC will go up by an additional 10% when its convertible stock kicks in. All in a company that has a gaping hole for a KPMG diligenced balance sheet....and SEBI lines up rating agencies for IPO grading too - poor souls, retail investors....

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