Two-and-a-half months ago, when Vallabh Bhanshali’s friend, Anil Singhvi, approached Shikha Sharma to try and work out a deal, the managing director of Axis Bank was evaluating another potential target. But this was an opportunity too good to be missed.
Bhanshali, said people in the know, had for long been considering bringing in a strategic partner or even cashing out to one. Axis Bank under Sharma, on the other hand, had been keen to fill the gaps to emerge as a full-service corporate and investment bank. The biggest of these gaps was equity capital markets (ECM). That’s the pitch Singhvi used to get the two talking.
It didn’t require too much convincing. As Bhanshali put it: “When you get a good thing, you go for it, you don’t wait for the right timing.”
Sharma created her brains’ trust to take the process forward. Axis Chief Financial Officer Somnath Sengupta, its President, finance & accounts, Sanjeev Gupta, and Executive Director Srinivasan Varadarajan formed the A-team. In came Macquarie and Sailesh Haribhakti, as well as Axis’s advisors, to stitch it all together and help in the valuation exercise.
“It’s a partnership to form an Indian financial powerhouse. The Indianness also played a key role. Culturally, for both of us, it’s about relationships first. Transactions follow,” said a senior banker involved in the negotiations. The two have 18 common clients and the number is growing. So, a common pool works for both the sides.
“Enam identified Infosys in the early 90s. We are identifying similar corporate growth stories today. So, we can’t think of a better fit,” an Axis board member said after the board meeting.
Matters reached a feverish pitch in the past one month. Yes, in between, like all deals, there were issues about valuations, which moved between Rs 2,500 crore to, as an official puts it, “the Nomura tag of Rs 3,500 crore.” Deal structuring, therefore, played a crucial role. Enam didn’t want a sell out. It wanted a merger. A stock deal was also more effective, not just from the tax management point of view, but also to bind the partners. Selling a stock deal to Axis Bank’s board was also considered an easier task.
“Considering the Enam franchise, the product gap that it will fill, and compared to transaction multiples and price to earning multiples among peer groups, the price of Rs 2,067 crore was reached. At 17 to 18 times forward multiple, pricing was not a big issue,” said another official.
Banking, being a regulated space, also meant deft structuring of the deal. Rules bar banks from directly participating in the broking business. “A separate entity also works fine as unlike in a bank, the compensation structure in broking, ECM, is very different. It works on variables, bonuses. And, people make or break this business. As a bank, it was becoming difficult for us to attract the right talent at the right price,” said a senior Axis bank official.
The board meeting today in the Axis Bank headquarters in South Mumbai had only one issue to discuss: The Enam-Axis merger. Sharma was ready with her strategy. Sengupta and Varadarajan made exhaustive presentations, while Sharma explained the rationale of the deal. Nobody doubts the clean record and reputation of Enam and so the board members had simple queries about synergies and how the merger would add value to Axis shareholders.
Once everybody was convinced and the valuation methodology was explained, the rest was a formality. All that was left was the formal handshake with Bhanshali and Enam Securities’ CEO, Manish Chokhani, who were waiting outside.
