Post-deal, the co-advisor is focusing on becoming a financial services company.
Post-Satyam, life has changed for Avendus, a boutique investment banking firm.
“Wherever we went, people said, ‘here come the Satyam bankers’. In our business, you are known by the largest transaction,” says Ranu Vohra, the founder and managing director of Avendus.
Avendus was the government-appointed co-advisor for the Satyam transaction.
“Apart from the revenue, there was one important thing that Satyam did to us, giving us internal confidence. The pitch that we do now is remarkably different from what we did earlier,” says Gaurav Deepak, the co-founder and managing director responsible for consumer products and services.
Satyam may have given them the eyeballs, but Vohra, who worked for the Tampa-based boutique investment bank, Communications Equity Associates, and the Hinduja Group, before setting up Avendus, says the investment bank has done much more complex deals in the past and has been among the top players in information technology (IT) and business process outsourcing.
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Avendus has worked with at least six-seven of the top-10 IT firms. Started with an IT focus in 1999, it has moved into half-a-dozen niche areas that include life sciences, consumer goods, real estate and infrastructure. Five years later, it decided to turn into a full-service investment bank aimed at helping clients launch public offers and plan structured financing deals, and providing an institutional trading platform.
Now, it is focusing on becoming a financial services company offering portfolio management and wealth management services other than just private equity (PE) syndication. At the same time, Vohra says the focus will remain on sectors where Avendus has expertise. Since September 2006, the headcount at the company has risen from around 30 to 100.
A part of the strategy is to ensure that clients who come to Avendus stick with it. So, a company that comes for PE syndication may use the firm’s services for an initial public offer (IPO) while its promoter can use its wealth management platform. “We realised that if we had remained a boutique firm, we would not have been able to grow our client base. India is a market where you should be able to serve multiple segments,” said Vohra.
Besides, the idea is to ensure a stable source of revenue as fund-raising and merger and acquisition (M&A) activity are linked to the capital markets. “The only business that we think is sticky is wealth management. M&As continue to be a stable business since in a bad market, people sell what they have bought,” he said.
Over the next five years, as other businesses pick up, the share of financial advisory (includes M&As, PE syndication) in the revenue is expected to fall to 50 per cent from 75-80 per cent at present.
While Avendus has been widening its horizon, getting big clients for its new businesses has not been easy. For instance, Girish Nadkarni, who heads equity market, real estate and infrastructure teams, talks about seven IPO mandates with sizes in the range of Rs 150-600 crore. “It takes a while, may be two-three years, before you get a large mandate. Besides, the fee in such businesses is often not large,” said Nadkarni, who has come from IL&FS Investmart.
In contrast, in case of the PE syndication business, the average ticket size of an Avendus transaction last year was around $40 million. On the other hand, the average transaction size overall was $30 million, said Vohra.
“We have moved away from smaller deals. We have been making transactions north of $20 million over the last two years. We are in the mid-sized deal category,” he said.
Besides, the global financial crisis played its part in ensuring that Avendus altered its plans when it came to raising its own fund. The liquidity crunch meant that Manoj Thakur, CEO, Avendus Private Equity, had to tap domestic high networth individuals (HNIs). The Avendus Star Fund is investing in small-caps with market capitalisation of Rs 50-500 crore with target internal rate of return of 30 per cent over a three-four year horizon. With foreign investors still risk averse, Thakur, who worked for AS Watson and Hutchison Whampoa (Hong Kong) earlier, is planning to tap ultra-HNIs for a second Avendus Star Fund. It is not until December, when Thakur expects the LP market to revive, that the Rs 1,000 crore fund-raising will start.
Vohra paints a rosy outlook with high interest in inbound M&As, more companies planning IPOs and greater interest in the PE syndication business. “In the first half of 2009 we have done whatever we did in 2008,” said Vohra. The amount of deals that the company closed last year were in the range of $650-700 million.
But as Deepak says, how successfully Avendus can transform into a financial services player depends on its ability to attract talent. “That is core to me. So far, we have done that,” he says.