French banking and financial service giant BNP Paribas SA has struck a deal with private equity owners of Sharekhan Ltd to acquire the Mumbai-based brokerage firm for an undisclosed amount, it said on Thursday.
The deal provides an exit to a bunch of private equity backers, including The Rohatyn Group, Samara Capital and Baring PE Asia. The Rohatyn Group became a large shareholder in Sharekhan after it acquired Citigroup Venture Capital International (CVCI).
Earlier, Warburg Pincus was leading the race to acquire a large stake in Sharekhan from The Rohatyn Group, among others. The Rohatyn Group currently owns a little over 40 per cent stake with Samara Capital holding around 30-35 per cent, after factoring in convertibles like preference shares and debentures. Rest is with Baring PE Asia, IDFC and others.
Baring PE Asia was separately looking to the stake held by IDFC and some other shareholders but the Foreign Investment Promotion Board (FIPB), the nodal body monitoring foreign investment in the country, rejected the proposed deal two months ago.
Sharekhan (formerly known as SSKI Investor Services Pvt Ltd) was incorporated in 1995 and launched its brand 'Sharekhan' in 2000 to offer broking services predominantly to non-institutional clients. In 2005 the company changed its name to Sharekhan Ltd.
The firm was originally promoted by Shripal S Morakhia and Shreyas S Morakhia. In 2000, it raised funding from private investors HSBC Private Equity, Intel Capital and Carlyle. In April 2006, General Atlantic invested in the company through subscribing to equity and participatory convertible non-cumulative preference shares besides purchasing the equity holding of Carlyle (held through First Carlyle Ventures Mauritius).
In 2007, Morakhias sold their stake to Human Value Developers. At the same time CVCI, then the private equity arm of Citigroup, Samara Capital and IDFC subscribed to CCDs issued by Sharekhan at an aggregate investment of Rs 200 crore. The investors also purchased the stake held by General Atlantic, HSBC Private Equity and Intel Capital Corporation.
In February 2008, Baring PE Asia entered the firm and subscribed to fresh CCDs along with some of the existing investors. Baring PE Asia had picked 12 per cent equity stake in Sharekhan for Rs 240 crore through a mix of stake purchase from CVCI and addition of fresh capital. The deal valued Sharekhan at around Rs 2,000 crore then.
Separate media reports said BNP Paribas is now buying Sharekhan for Rs 2,200 crore, citing sources.
It offers broking solutions across asset classes to more than 1.2 million private clients and has been clocking profits consistently. BNP Paribas estimated it has 7 per cent market share in terms of number of accounts.
Sharekhan will join BNP Paribas’ personal investors division, which is a key player in retail brokerage and digital banking services with 1.7 million clients in Europe.
“Sharekhan will serve as a platform for the group’s strategy in India to offer a comprehensive range of products from pure brokerage to asset-based investment services, including mutual funds and savings products. The purchase of Sharekhan is a unique opportunity for us to build on our achievements in the Indian market and to expand our business in the country," said Joris Dierckx, country head of BNP Paribas India.
Dierckx became the country head early this month taking over the role from Jacques Michel, who moved to Bahrain as head of Middle East and Africa, BNP Paribas Corporate and Institutional Banking.
Dierckx was previously head of BNP Paribas in Korea.
BNP Paribas, which is present in the country since 1860, has branches in eight major cities. It offers a range of financial services covering corporate and institutional banking, transaction banking and wealth management. In addition, BNP Paribas has subsidiaries and strategic partnerships that offer other solutions in India.
Interestingly, BNP Paribas already owns a large minority stake as a co-promoter of public listed Geojit BNP Paribas. Geojit BNP Paribas is a retail financial services company which also offers brokerage solutions in India with a growing presence in the Middle East.
Geojit BNP Paribas’ share price shot up over 13 per cent after BNP Paribas announced the acquisition of Sharekhan. It was trading at Rs 51.75 a share, up 13.55 per cent on BSE at 2.47 PM in a strong Mumbai market on Thursday.
Several stock brokerages had attracted PE funding during the last bull-run which ended in January 2008. Valuation of brokerages have crumbled since then.
Some like Carlyle went on to bet on the sector later (acquiring stake in India Infoline and Edelweiss) when the valuation was down.
The revival in the markets with the new government in place has led to analysts predicting the beginning of a new long-term bull-run. This has once again made brokerages attractive. The rise in the stock markets over the last one year has put a shine on the fortunes of brokerages as investors flocked back to trade in shares.
Early this month, Canadian investment giant Fairfax sought to hike its stake in Carlyle-backed financial services company IIFL Holdings Ltd (formerly India Infoline). Fairfax India Holdings Corporation (Fairfax India), which raised $1.06 billion early this year through an IPO in Toronto Stock Exchange with anchor investment from Fairfax, has offered to buy up to 26 per cent for Rs 1,621 crore ($255.4 million) from public shareholders.
Parent firm Fairfax Financial already owns close to 9 per cent in addition to an economic interest of another 5.24 per cent stake through derivative instruments.
In another development, SMC Global is in the queue to go public in a national bourse. It is already listed on Delhi Stock Exchange.