Investment banks are having a tough time with mergers and acquisitions slowing this year, following the global credit squeeze and the subsequent fall in the stock markets. Sanjay Bhandarkar, managing director, N M Rothschild & Sons (India), the local arm of the Europe-based privately held investment bank, told Abhineet Kumar that India may see an increasing number of non-friendly deals as the markets correct themselves and valuations become more attractive. The investment bank that helped Tata Steel [Get Quote] acquire Corus and Cairn India [Get Quote] to launch its $2-billion public float expects larger inbound deals in the future. Excerpts:

How has the acquisition appetite of Indian companies been affected due to the credit squeeze and the fall in the stock markets?

If you were to look at the number of deals, or the value of the deals, then it is fair to say that there has been a moderation. People have become a lot more selective. Funding is a lot more difficult to come by, either in raising debt externally or taking the equity route. All this has obviously resulted in fewer deals. But the deals that are happening are very good, with strong acquisition rationale.

Is the tide of Indian companies looking for overseas expansion through acquisitions reversing?

It is becoming a lot more sporadic. It is no more a trend. We are seeing fewer mega deals. But there are a fair number of mid-sized deals and these sub-$ 1 billion deals will continue. We have not seen any reduction in the appetite of Indian companies to consider acquisition. Every trend goes through ups and downs and we are probably in the downside of the trend.

What is a bigger hindrance -- availability of finance or uncertain business environment?

It is a mix of the two. I would imagine the bigger hindrance would be more availability of financing. To some extent, the uncertainty can be factored into the price. But it is not to say that it is not an issue.

How and to what extent have the borrowing costs gone up?

The spread has gone up dramatically, but the base has come down and, in absolute terms, the cost has not moved as much. More importantly, it is the quantum of available financing that has become a constraint.

The amount of leverage as well as the absolute amount of money that you can raise is becoming a constraint. The other thing is that a lot of these (deals) were financed through bridge loans which had then to be taken out by bringing capital issues. That is becoming a challenge. With the capital markets the way they are, people are less comfortable taking short-term bridge loans, not knowing whether they will have the ability to refinance in a short period of time.

Is the Indian M&A market showing signs of maturity with promoters willing to sell their flagship companies (like Ranbaxy) and hostile bids starting to show their presence (such as the Emami-Zandu deal)?

It is too early to say that it is a trend. But it is true that more people are looking at unconventional options instead of sticking to a conventional kind of framework. They are trying to see what kind of deals makes sense.

So, you will see more larger inbound deals. It will increase in terms of volume as well as value. You will see an increasing number of un-friendly deals -- they may not be absolutely hostile -- but they might not be particularly friendly. Especially when the market may further correct and valuations may become more attractive.