Know which companies are fighting it out to buy Sharekhan

Surpassing several global banks, financial services companies and big private equity peers, Warburg Pincus and General Atlantic would jointly take over leading brokerage Sharekhan after months of negotiations and competitive bidding. This would be among the biggest such acquisitions in the industry.

The Warburg-General Atlantic combine has emerged as the frontrunner to buy the company for a valuation of Rs 2,300-2,400 crore. The interest in a brokerage firm, after a gap of over six years, coincides with the gradual upswing in India's equity markets.

Late last year, Citi Venture Capital International (CVCI), the majority owner of Sharekhan, had mandated Citi to find a buyer. Citigroup had sold its $4.3 billion emerging markets private equity fund CVCI to New York-based Rohatyn Group in 2013 to comply with US rules. CVCI owns 60% of the company. Other shareholders are Baring Asia Private Equity (14%), IDFC (10%) and Samara Capital (5%), with the balance held by Sharekhan employees.

BNP Paribas was the second-highest bidder for the asset. "Warburg-GA combine and BNP Paribas have emerged as the most aggressive candidates. But between the two, the former has the edge. The final leg of negotiations is ongoing," a person who's directly involved in the matter told the Economic Times.

If the deal goes ahead, General Atlantic will be reinvesting in Sharekhan, having exited in 2007. While there wasn't much difference among the top three financial bids, the private equity consortium's agreement terms, turnaround plan, familiarity with the team and their operation and global successes in the same field is believed to have gone in its favour.

Sharekhan has a net worth of Rs 1,300 crore and has been valued at 1.7 times this. In dollar terms, CVCI would make a twofold return on its investment with the dollar having been at 40 rupees at the time of its stake purchase, going by this estimate.

A Warburg Pincus spokesperson told ET: "The firm is bound by internal operational policies, which does not allow discussion of its investment activities."

Warburg and General Atlantic, among the earliest private equity firms to enter India, have historically taken big bets on the Indian financial services space with investments in stock exchanges to brokerages, non-banking finance companies (NBFCs) and banks. These include HDFC, Kotak Mahindra Bank, IndusInd, the National Stock Exchange and AU Financiers among others.

Globally, Warburg and General Atlantic have teamed up to helm a financial services platform. In 2013, the two carved out the asset management platform of Banco Santander into an independent company and took control of it. This operates in 11 countries in Latin America and Europe with products distributed through Banco Santander's network of over 14,000 branches.

Warburg bought Future Capital Holdings in 2012 from Kishore Biyani, its first buyout in the space, renaming it Capital First. Last year was Warburg's most active in India, investing $413 million in seven companies.

Meanwhile, Sharekhan is India's third-largest brokerage firm after ICICI Direct and HDFC Securities in terms of the client base. The Mumbai-based firm has 160 branches and 13 lakh retail investors, while ICICI Direct and HDFC Securities have 30 lakh and 17-18 lakh, respectively. Sharekhan made a profit of Rs 175 crore in FY15, up from Rs 102 crore in FY14 and Rs 112 crore in FY13.

(Image: Indiatimes)