In an era of extravagant merger and acquisition deals, the compensation offered to the financial advisors involved often makes headlines. However, the $64 billion merger between the Housing Development Finance Corporation (HDFC) and HDFC Bank Ltd, one of the most substantial transactions in Indian history, has drawn attention of all for a different reason.

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About 18 advisors shared a compensation pool of just over $1 million, a figure translating to a minuscule fee of 0.0002 per cent of the $64 billion deal, reported Bloomberg. This unusual fee underscores the unique challenges that investment bankers encounter in the Indian financial market.

Reason behind low fee for financial advisors

The fee for financial advisors is low due to the fact that the merger process was mostly driven by recently retired HDFC Chairman Deepak Parekh, according to the report. 

The lion's share of the fee pool went to financial giants Morgan Stanley and Bank of America, leaving a meager portion for the rest. Interestingly, the minimal fees are attributed to the limited involvement of the advisors in the deal. The merger process was primarily guided by the board and company executives, leaving many advisors in the dark until a day before the merger's announcement.

As the transaction led to the creation of a highly valuable bank, the slim reward for financial advisors in such a monumental deal might seem incongruous. It serves as a reminder of the complex dynamics within the Indian banking system and the nuances of deal-making in one of the world's fastest-growing economies. Despite being a hot-bed of merger and acquisition activity, with companies raising Rs 2 trillion in FY21 and FY22, investment bankers are rarely ever taking a larger portion of the fees. Price sensitivity and strong competition are seen as some of the reasons behind this. 

HDFC and HDFC Bank merger deal

The two entities completed their merger on July 1, creating one of the most valuable lenders in the world. Termed as the biggest transaction in the history of Indian financial markets, the two entities had agreed for a takeover on April 4, 2022. The now merged financial services titan has combined assets of around the tune of Rs 18 lakh crore and will be India's second largest lender.