Mumbai: Just sealed Avendus-KKR deal reopens an old trend in the pure play investment banking sector, which was dominated by deal-makers, Nimesh Kampani, Vallabh Bansali, Hemendra Kothari and Uday Kotak till late 90s, who either exited the business or turned full-service financial players.
While some of these pioneering biggies, Mr Kothari and Mr Bansali, quit the space after selling DSP Merrill Lynch to Merril Lynch in 2005 and Enam Securities to Axis Bank in 2010, respectively, Mr Kotak and Mr Kampani became full-service financial players with focus on credit business.
Kotak has even entered into the banking sector.
What was notable about them, however, was that these maverick investment bankers cut deals for cash-rich large business houses riding on their long relationship with the promoters.
But even after the economic boom post-liberalisation, there was no boom in the pure play investment banking space in the country, instead the entrenched players who entered as brokerages-cum-investment-bankers such as Centrum Group, Edelweiss Group, IIFL Group, Motilal Oswal, Kotak Mahindra, IndiaBulls etc, soon chose to expand their balance sheets and turned diversified financial services operators.
However, as market leaders diversified, there was also a trend of new pure play investment bankers entering the scene with the economic boom that started in the early 2000. These string of boutique investment banks primarily focused on niche areas and scripted success stories.
They include Avendus Capital, Mape Advisory, Equirus Capital, Singhi Advisors, O3 Capital and Kriscore Financial Advisory and became a force to reckon with in the growing investment banking industry by focusing on mid-market deals.
Since the late 1990s and early 2000, many brokerages began to diversify and became financial services firms to minimise risks.
And JM Financial, Centrum Capital, Edelweiss, IIFL and Motilal Oswal, among others are of the latter lot.
It can be recalled that yesterday global private equity major KKR and Avendus Capital had said the latter would raise its stake in the homegrown financial adviser to 70 per cent from existing 10 per cent for an undisclosed sum.
KKR would be buying out Eastgate Capital and Americorp Ventures, early investors in Avendus through the deal. The existing management team of Avendus, which has a strong focus on mid-market firms, led by co-founders Ranu Vohra, Gaurav Deepak and Kaushal Aggarwal, would continue to manage the day-to-day operations and its growth into new businesses.
The deal, which is a first of its kind in the domestic investment banking where a PE player has taken over an investment banker, is a win-win for both as the KKR money will widen Avendus' credit business, while the deal will also help KKR increase its fledgling NBFC business here.
According to Mahesh Singhi, Founder and Managing Director of Singhi Advisors, which is a cross-border investment bank focused on M&As, divestiture and corporate advisory services, the deal reopens the trend of the past.
"For Avendus, it is a good deal as the money that comes into its coffers will allow all its existing investors exiting in favour of KKR in a bilateral transaction. The deal is all the more good for Avendus as it looks to grow on asset business with its NBFC," Mr Singhi told PTI.
He also pointed out that many players in the past like SMC, Globe Capital Markets, Motilal Owswal, Anand Rathi, Mape, Spark, Bonanza, SherKhan, etc, have all raised PE funds during the last boom in financial sector between 2006 and 2008 and have seen PEs coming on board.
But he was categorical in stating that he has no plans to rope in investors, saying "we want to be a self-sustaining pure play advisory firm and have no plans to induct financial or strategic investors nor we have any investors/PE funds looking to exit."
Ajay Garg, founder of Equirus Capital, which was set up a few years back and focuses on M&As and investment advisory, also said this is a good buy for KKR as it can push its nascent NBFC business with Avendus.
For Avendus too, it is a good move as it will help it become a credit player for which, it needs capital which this deal ensures.
Kriscore Financial Advisory founder K Balakrishnan also described the KKR-Avendus deal as good for the investment banker as the fresh funds will help it expand its balance-sheet to grow its fledgling credit business.
The deal will help Avendus scale up its NBFC arm.
"And the deal per se is a first in the sense that a PE fund, which does not have any investment in an investment bank, has taken over an investment bank," he said.
It can be recalled that Hemendra Kothari had sold his 50 per cent stake in DSP Merrill Lynch to Merril Lynch way back in 2005 for $500 million.
Centrum Capital, promoted by Chandir Gidwani, has beefed up its lending activities and recently capitalised and started an NBFC. Its wealth management business focuses on alternative investments like real estate PE funds and unlisted firms.
Centrum has also augmented its capital market products.
Nimesh Kampani's JM Financial, which had a JV with Morgan Stanley, has also expanded and built new businesses in the past seven years. A fund raised and advised by former Citgroup CEO Vikram Pandit has invested Rs 540 crore in JM Financial's real estate lending arm. It is also into asset reconstruction business.
For IIFL Group, the expansion was smoothened after Canadian investor Prem Watsa picked up considerable stake in the Nirmal Jain-owned non-banking finance company.
Rashesh Shah-owned Edelweiss also has the same story.
After having established itself as a capital market player, Edelweiss has added many a new business with focus on credit business following the global meltdown.
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