Bangalore: For RamKumar R., floating a boutique investment bank (i-bank) was an easy decision.
After having worked for nearly five years with Mape Advisory, a prominent i-bank in India, he had learnt the art of closing deals and had developed a wide network to sustain a new firm. That was 18 months ago.
His Chennai-based Pears Capital has since closed 10 deals and has mandates for 10 more, half of them cross-border transactions.
Ten months ago in Bangalore, V. Sundararajan, a former chief financial officer of Aztecsoft Ltd, the software firm acquired by MindTree Ltd, floated an i-bank called Numinous Consulting.
The two-person firm has completed seven deals and has seven more in the pipeline, with at least six others in various stages of evaluation.
At least 300 new i-banks have come up in India over the past 18 months at nearly one every second day, according to industry estimates.
Even in 2006-07, when fund-raising was at its peak, only 50-60 new i-banks were opened.
Experts say while i-banks have been around for long, it’s only now that the industry’s maturing. Several Indian firms are raising funds and scouting for acquisitions. And the i-bank veterans want a share of the pie.
The fallout is obvious: Overcrowding and tougher competition.
For any good deal, five-six i-bankers are always in the fray making a pitch, said Deepak Srinath, director of Viedea Capital Advisors Pvt. Ltd, a Bangalore-based boutique i-bank that opened in 2007. “It’s becoming like real estate brokering. You can either go to Cushman and Wakefield or go to a broker sitting on the corner of your street.”
Boutique i-banks typically handle sub-$25 million (Rs115 crore) deals, mostly helping in fund-raising, debt, and private equity (PE) and venture capital investments. The competition has now driven even big i-banks to tread into deals of $25-75 million, below their usual $100 million benchmark.
“I was considering deals in May and June, and the average deal size is $55 million. (About) 75% of the deals are below $75 million,” said Abhijeet A. Biswas, director of Equirus Capital Pvt. Ltd, which was founded in 2007. “They (the big i-banks) are stepping into the domain of boutique i-banks.”
In India, there are about 15 multinational investment bankers, 15-20 large homegrown i-banks, about 500 i-banks that have teams of 5-50 people, and nearly 1,000 small mom-and-pop i-banks usually with one or two partners running the show. Many of the 300-odd i-banks that have come up since early 2009 are in this last category.
“The key lies in creating a niche for yourself,” said RamKumar of Pears. “We have more than 25 cross-border partnerships with other investment banks across the globe.” Pears had advised Godrej Consumer Products Ltd’s acquisition of Argencos SA, a mid-size Argentine haircare company, for Rs20 crore in June.
A consolidation, obviously, is on the cards. “We have (been) approached by two firms for a merger,” said Viedea’s Srinath. “One of them is a geography-specific i-bank and wants to expand its reach in the south. The other is an overseas player, looking at facilitating in-bound tech deals in India.”
With cross-border acquisitions becoming important for Indian companies, i-bankers are looking at partnering with overseas firms as well.
Also, big i-banks could take over a mid-segment niche firm to grow larger and eliminate competition, say experts.
The i-bank story of veterans going on their own finds a parallel in the PE sector.
In April 2009, Renuka Ramnath, then managing director and chief executive at ICICI Venture Funds Management Co. Ltd, quit to float PE firm Multiples Alternate Asset Management Pvt. Ltd, Ajay Relan quit as managing director and India head of Citi Venture Capital International in 2008 to launch CX Partners.
“I would say it’s the business entrepreneurship streak in the Indian blood triggering it,” said a Mumbai-based i-banker, who did not want to be identified. “It also indicates that the industry is maturing and investment bankers are gaining increasing confidence in their professional expertise.”