Indian market proves a tough nut to crack for non-domestic players

India’s corporate M&A market has traditionally been dominated by a few elite law firms, with local heavyweights Amarchand & ­Mangaldas & Suresh A Shroff & Co and AZB & Partners among them. For new entrants, getting a piece of the action can be tough.

But as the world waits for the Indian legal market to liberalise, there has been a shake-up in the M&A marketplace with the entry of foreign firms.

In Mergermarket’s deals tables the top four Indian firms are Amarchand, AZB, Desai & Diwanji and Khaitan & Co (see table).

But all four UK magic circle firms are also represented, and in the past 12 months Allen & Overy (A&O), DLA Piper, Linklaters and several US firms have been sitting at the top of the list.

That is not to say that international firms will oust the Indian players from the market, although their market shares have grown significantly. The strongest line of defence still open to Indian firms is the strength of the relationships they have with Indian corporates.

As one partner at an Indian firm says: “Family plays an important role in India – not only in ­business, but also in law. Firms’ connections in the corporate world often come from their lineage.”

AZB partner Zia Mody, one of the best-known lawyers in corporate India, argues that it is not just connections that land Indian firms their instructions, though.

“I think we’ve just been fortunate that, in a year of frenzied M&A activity, last year we’ve been known to keep our quality intact and work under severe time pressure,” says Mody. “That tells its own story in the marketplace.”

This is backed up by the fortunes of Khaitan, which has risen up the deals tables since its launch at the beginning of the decade. Research consultancy RSG Consulting ­identified Khaitan, along with Amarchand, AZB, J Sagar Associates and Luthra & Luthra Law Offices, as part of an Indian magic circle (The Lawyer, 19 January).

Khaitan partner Rabindra Jhunjhunwala says: “We set up an office in Bombay only in 2001 and haven’t really looked back since. In Bombay and India we’ve made a mark in the last three to four years and now we’re being seen as part of the magic circle of India.”

Late last year Khaitan won a major instruction acting for NTT DoCoMo on its $2.7bn (£1.88bn) telecoms alliance and strategic investment with Tata Teleservices (TTSL).

TTSL and Tata Sons turned to AZB, which was more or less ­guaranteed the instruction on the back of Mody’s strong ­relationship with Tata Group. US firm Skadden Arps Slate Meagher & Flom and Japan’s Nobuhisa Ishizuka also picked up instructions on the deal, acting for NTT.

While a few years ago it would have been unusual to see ­international firms acting on ­Indian deals, now the trend is becoming more of a norm.

Research by RSG suggests that in the past three years UK or US firms acted on the majority of ­corporate M&A instructions with Indian companies. Indian firms advised on less than a third.

One reason for foreign firms’ involvement should be obvious: over the past three years purely domestic India deals had a value of $2.8bn (£1.95bn), while inward and ;outward-bound ;deals amounted to a considerably larger share of the market, at $27.5bn (£19.14bn) ;and ;$34.5bn (£24.02bn) respectively.

Yet foreign firms are also active domestically, according to RSG founder ;Reena ;SenGupta. “Although foreign firms are technically not allowed to practise Indian law,” she says, “it’s interesting to see how many foreign firms appear listed as the main advisers on intra-Indian deals in our research.”

That said, Anand Prasad, a partner at A&O ally Trilegal, disagrees, saying that in most transactions foreign firms still keep low profiles. “Unless the deal’s extremely large, the foreign firms play an extremely limited role, although their name might be on a deal,” he says.

A poster child is Vodafone’s £13.7bn takeover of mobile phone operator Hutchinson Essar in early 2007 – the single largest deal of the past three years. Linklaters had a huge role advising the buyer, together with its now Indian best friend Talwar Thakore & Associates and Trilegal, which was still independent from A&O at that stage.

Khaitan handled the Indian legal work for the target, while a raft of foreign firms pitched in: Paul Weiss and Freshfields Bruckhaus Deringer for the target and Herbert Smith for the major shareholder Essar.

But while many international firms have managed to gain serious market share in India’s ­lucrative corporate world, their chances of continuing to do so are looking increasingly slim.

Desai partner Vishwang Desai says: “Everybody on the ground says it will get very, very hard. Inbound investment has almost stopped now and outbound has stopped entirely – I don’t think Indian entities have any appetite for expenditure.”

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