Domestic Indian investment bank Edelweiss Capital has struck an agreement to buy Anagram Capital for Rs1.6 billion ($35 million) to strengthen its retail broking business.
Through a network of more than 137 branches and over 1,300 sub-brokers, Ahmedabad-based Anagram services more than 180,000 clients. The company, which is part of the Lalbhai Group, earned revenues of Rs1 billion for the nine-month period ending December 31.
Edelweiss was established in 1996 by Rashesh Shah. It has grown from offering primarily investment banking services into a diversified financial services company with a presence in brokerage, asset management and financing, as well as investment banking.
Edelweiss went public in 2007. Its $176 million initial public offering was 176 times covered. It is currently active primarily in the institutional broking segment. Thus, the Anagram business will allow it to diversify into retail broking.
"We evaluated the option of building out the retail brokerage business, which might have been marginally cheaper but would have been much more time-consuming," said Shah in an exclusive interview with FinanceAsia. "Further, with the deal we are acquiring Anagram's experienced management team, which will be an asset to our plans."
The deal was done on a principal-to-principal basis without advisers. The Lalbhai Group had been examining strategic options for Anagram and Edelweiss made an offer to acquire the business. The valuation was negotiated based on various financial parameters, including multiples at which comparable deals have been transacted, and revenue and profit multiples. It also took into account Anagram's customer base and network.
Edelweiss will finance the deal from its balance sheet as it is sitting on ample cash reserves, said Shah. In the financial year ending March 31, 2009, Edelweiss registered revenues of Rs9 billion on which it earned a net profit of Rs1.9 billion. Over the past decade, Edelweiss has grown its revenues at a compound annual growth rate of over 80% and net profits at a CAGR of around 75%.
Edelweiss has around 1,200 employees. It has been able to attract talent even in a very competitive job market through offering shared ownership to employees; 50% of the company is owned by employees, including key management. Around half of the employees on Edelweiss's roll are part of the bank's employee stock ownership plan (Esop).
Anagram will continue to be a separate company, operating as a 100% subsidiary of Edelweiss. The Anagram brand will also be maintained, said Shah, although co-branding could be considered in the future. This is to ensure minimal disruption to Anagram's large and widespread client base. However, all Anagram employees will be eligible to participate in the Edelweiss Esop, which is the model Edelweiss has adopted with all its subsidiaries, added Shah.