Sharekhan will join BNP Paribas’ Personal Investors division, which is engaged in retail brokerage and digital banking services with 1.7 million clients in Europe. Photo: AFP
Mumbai: French bank BNP Paribas SA on Thursday agreed to acquire retail brokerage Sharekhan Ltd after nearly six months of negotiations between existing investors and bidders, including bulge bracket private equity (PE) firms Warburg Pincus Llc. and General Atlantic Llc.. which bid together.
The companies did not disclose the price of the acquisition, but a banker familiar with the transaction said on condition of anonymity that BNP Paribas will pay Rs. 2,200 crore for buying Sharekhan in its entirety.
BNP offered 10% more than what Warburg and General Atlantic bid, said the banker.
“BNP Paribas announces that an agreement has been reached with the company’s shareholders for BNP Paribas SA to acquire 100% of Sharekhan,” the bank said in a statement.
The purchase will reinforce BNP Paribas’s retail broking operations in a country where it offers corporate and retail banking, investment banking and wealth management.
The bank said the purchase of Sharekhan will allow it to further expand into brokerages as well as asset management in India.
“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,” said Joris Dierckx. country head of BNP Paribas India, in a statement.
Existing shareholders in Sharekhan—the Rohatyn Group Llc. Baring Private Equity Asia, IDFC Ltd and Samara Capital—have been looking to exit their investment in Sharekhan for the past year.
The investors had been in talks with several potential investors including IndusInd Bank Ltd. Warburg Pincus and General Atlantic, among others. IndusInd left the race because of the high valuations that were being demanded, Mint reported in May. At the time, Warburg and General Atlantic were thought to be front runners to buy Sharekhan.
A second banker familiar with the transaction said the PE firms wanted “indemnity” against any roadblocks arising due to clearances needed from agencies like the Foreign Investment Promotion Board (FIPB).
Sharekhan was set up in 2000 by Mumbai-based entrepreneur Shripal Morakhia. whose family has been in the equity broking business for decades. Till March 2007, the
Morakhia family owned a 43.58% stake in the brokerage. Over the years, this holding was sold to PE investors.
Data from the registrar of companies show that Sharekhan earned Rs. 355.5 crore in revenue from operations in fiscal 2014 and a net profit of Rs. 83.8 crore.
In fiscal 2013, it had reported revenue of Rs. 348.8 crore and a net profit of Rs. 90.8 crore. Financials for the just concluded fiscal year have not been filed.
With a 7% market share in terms of the number of accounts, Sharekhan is the first independent and third retail brokerage firm in India, said the statement issued by BNP Paribas.
The bank added that Sharekhan will join BNP Paribas’ personal investors division, which offers retail brokerage and digital banking services with 1.7 million clients in Europe.
Currently, BNP Paribas has a presence in India through Geojit BNP Paribas in which the French bank holds a stake of about 33%.
BNP declined to say whether there would be any consolidation of the two businesses after the Sharekhan acquisition.
Tarun Shah. CEO of Sharekhan, did not return calls seeking details of the deal.
Brokerages are back on the radar of investors. As India’s economic growth accelerates, retail investors have flocked to buy stocks, particularly those of small- and mid-cap companies, boosting the fortunes of equity brokers.
“People are expecting Indian equity markets to triple from here on in next five years which means there will be a heightened amount of activity in the capital markets,” said Ashutosh Maheshvari. managing director and chief executive officer at Motilal Oswal Investment Advisors Pvt. Ltd.
Maheshwari added that strategic investors don’t want to miss out on increased opportunities for brokerage houses against that backdrop.
On 15 July, Canadian billionaire Prem Watsa’s Fairfax India Holdings Corp. announced an open offer to buy a 26% stake in financial services firm IIFL Holdings Ltd. formerly known as India Infoline Ltd. At an offer price of Rs. 195 per share, the transaction will cost almost Rs. 1,621 crore.
According to Grant Thornton India’s Dealtracker report, the banking and financial services sector saw PE deals worth $1.35 billion across 43 transactions in 2014, compared with $1.1 billion of deals across an equal number of deals in the previous year.