Satya Narayan Bansal, CEO of the Wealth and Investment Management business of Barclays in India, talks about the changes taking place within business families and their effect on the country's economic landscape
Q. You deal with the biggest business families in India. There was a huge acquisitive hunger in the mid-2000s among business groups and many acquired businesses abroad. Is that coming back gradually, or is it still too early?
There is a good amount of optimism and hope that many business families are sharing. Is that translating into action? We can debate that. But if you look at the large families, a large amount of the wealth lies in the business.
You go and talk to a billionaire, you will find that 90 percent of his billion comes from the valuation of his business. As most of the businesses were undervalued, so was the ability to write the cheque for any acquisition, whether in India or outside. What is happening now is, with the market improving in general, their currency, which lies in their business valuation, has already appreciated to an extent and they feel that’s likely to appreciate further. That gives them confidence. There is no uniformity of view on whether they would like to use this currency for acquisitions overseas or within India. A few years ago, people were going outside India because they were not able to do something more than what they were already doing in India.
Depending on which company and which business we’re talking about, there would always be pros and cons of going overseas, or acquiring backward- or forward-integration possibilities, or diversified businesses in India. So, I think there’s going to be a good amount of push and pull on whether to go overseas or not. At the same time, a number of opportunities in India, which have got into the trap of distress, are visible now for people who are confident of investing more. So, you may find a number of distressed assets getting into consolidation mode. That’s an equally good opportunity for Indian business groups in comparison to the opportunities they see overseas.
There’s another very important aspect. If you look at Indian business families, most, over a period of time, have got into multi-generational partnerships in the businesses. So, you will see the grandfather, the father and the children operating more or less in the same business or group of businesses. And as the business goes through a transition from one generation to another, there is the challenge of how it will be managed. There are issues around business continuity and succession planning, and all these are becoming core issues for the founders to address. But the related issue is there are more people in the family than the business [can accommodate]. So there is a sort of imbalance. I call it disguised unemployment. Either they are stepping on each others’ toes or they are stepping on the toes of the professionals in the company because they don’t have anything else to do. But remember, they are capable people. It’s not that there’s anything wrong with them. Now they have started identifying this problem of disguised unemployment, whether they admit it or not. Therefore, they have no option but to look for new businesses, whether in India or overseas.
In my interactions, whenever I sit with the patriarch and talk about it, he says, ‘Satya, we have to look for some more businesses, we have to make some more investments.’ They are clearly saying we need more businesses because we have more members in the family to manage them. So the need for diversification, growth and acquisitions is coming out of family dynamics. And that cannot be ignored. We have seen many families getting into forward- or backward-integrations because the business needs it, and also because they have got family members who can manage them well. Sometimes they are also getting into some unrelated areas because they feel the next generation is interested in some of those areas and they would like to grow there.
Q. Is this also a precursor, perhaps, to some of these family members starting out independent of the group?
Q. With some stability on the political front, what is the difference between your interactions with overseas investors last year and now?
(This story appears in the 05 September, 2014 issue of Forbes India. To visit our Archives, click here.)