Call me an insider investment banker: Singhvi

Ten years ago, this company acquired to get size, geographical presence and most importantly keep foreign players at bay. It is a story of cement company Gujarat Ambuja and is best told by its former CEO, Anil Singhvi. He is a master at the M&A game. He started by buying a sick company and then he did a Rs 350 crore deal in just four days and here is the winner - in one week he did two deals worth over Rs 800 crore!

Here is the background. It was 1997 and Anil Singhvi was treasurer at Gujarat Ambuja, an 11 year old cement company. Ambuja was present mostly in Western India with a 5 million tonne capacity. Business was stable, there was money in the bank and it was time to acquire scale. Singhvi had a target in sight, Modi Cement with over one million tonne per annum plant of the same vintage as Ambuja except that it was sick. Employee morale was low and the plant was in bad shape and yet Singhvi decided to make the move.

So, what were the challenges he faced in trying to acquire a sick company and then integrating it into his existing operations, even as you are dealing with all kind of creditors and all kind of regulatory issues? Former CEO of Gujarat Ambuja, Anil Singhvi told CNBC-TV18, "Everything was a challenge. To deal with, Mr Modi was the biggest challenge I ever had in my life because where do you start and what do you propose to a man like this and do you want to give any money because he already has a balancesheet, which is like leveraged 100 times, and so for what more do you want to put money on the table for equity holding?"

"So, I had a very difficult time to propose to him that I wanted to acquire the company but I didn’t want to pay him, but finally I got to know that he had another company - Modi Alkalies - and Modi Alkalies shares were placed with institutions for deciding his liabilities. So, if you can get rid of Modi Cement and hive it off, then atleast you can run Modi Alkalies without having any problem and that made a lot of sense to me." It seems simple now in hindsight but convincing the institutions who were owed money wasn't easy.

He recalls, "The point was that institutions now of course see a merit in this but in those days it was whether RBI will approve this kind of a thing. There were 18 lenders in Modi Cement including the commercial banks. The point was that they (Modi Cement) were needing money every time, so, whosoever lends them money - even a crore of rupees - was put into the consortium and in a consortium there is the golden rule, that all have to agree. We put the banking consortium on one side and put the institutional on another and worked it out. But fortunately, we were very clear in our mind that we would go through the BIFR. We will ask BIFR to put forward this and Modi Cement was one of the first examples, where getting in and out of the BIFR happened in four months flat."

Right after the Modi Cement deal, his next acquisition was again from a family-owned business. Lafarge was about to buy DLF and he came in at the last minute and just pulled that acquisition out from under their nose. This deal was on his mind for quite a while and so, he upped the money factor and speed was of the essence as well. DLF expanded Ambuja’s presence in the growing markets of North India but the plant was of poor quality. In May 1998, Anil Singhvi had told the media that buying DLF made no financial sense, why then did Ambuja take a Rs 350 crore risk on a loss-making company. Was it just to keep foreign players like Lafarge out?

He admits as much and says that Amubuja couldn't have had Lafarge in Rajasthan and the northern markets. Plus there was a huge price war on. He says, "This was completely at the back of our mind. A similar situation is now going to be replicated in the north and where Ambuja’s stakes were very high, we couldn’t have afforded that kind of a price war in the northern market and survive."
But at the end of the day, did these acquisitions really provide value to Gujarat Ambuja?

He explains, "Yes it took much longer than expected. Modi took almost about four years and DLF took five years. We thought we would be able to do it in 2-3 years time, so it took longer than that because they were many unpleasant surprises, which were in store for us. Modi has shown almost Rs 20 crore receivables and there were some credit notes, which were not accounted for at Modi."

"It was a very unpleasant surprise. You have to have some amount of confidence, you can't get into every transaction with complete details and numbers thrown at you. It is not possible and you cannot have a big auditing firm that does due diligence in India - that doesn’t work at all, atleast with the family businesses. They will never allow these things because they don’t want their skeletons to come out."

Two deals done but many more were left undone, Coromandal Cement was to be sold in an open auction but the reserve price was too high. Raasi Cement was not explored because the Ambujas were not too excited by the Andhra Pradesh market and thought Raasi was too small a brand. Ownership complexities doomed Sri Vishnu Cements and with Visaka Cement... well, the promoter called in sick on the day the deal was to be signed and the next day it seems, the company was sold to someone else!