Avendus breaks into "big-boys-club" with $7.8 million in M&A fee

Riding high on e-commerce, homegrown entity second with $7.8 mn in M&A fee in H1, 14% of the total earned by top 15

The seed sown five years earlier by Avendus Capital, the home-grown investment bank, has started bearing fruit.

According to a Thomson Reuters report, Avendus earned $7.8 million or 14 per cent of the $45.2 mn earned in fees by the top 15 investment banks in India in the first half of 2015. This was only slightly below the 15 per cent share of Morgan Stanley in this period.

In e-commerce, mergers and acquisitions (M&A) are based on existing investors or entrepreneurs identifying synergy with other companies, and then driving the transaction based on a business rationale or common vision of evolution.  This was evident in Flipkart’s acquisition of Myntra, where common shareholder Tiger Global played a critical role. And, more recently, Snapdeal’s acquisition of Freecharge where the promoters, Kunal Bahl and and Kunal Shah, closed the deal on their own.

Global investment banking giant Bank of America Merrill Lynch last year said it was surprised by the pace of deals in Indian digital space, for which they were not prepared.

In such a scenario, Avendus stood out when it advised TaxiForSure in its $200-mn merger with Ola. “We have a strong understanding of ground realities, which helps us find the trends early and we build on it quickly,” says Gaurav Deepak, co-founder and managing director at Avendus.

The entity was the first, about five years earlier, to bring out an exhaustive sector report on digital market opportunities in India, when it added the practice. It is now is one of the top advisors in this space.

Most of the transaction in Indian e-commerce is within the fund raising space, where again private equity (PE) and venture capital (VC) funds are familiar with the entities from an early stage and they do the deals on themselves. But, gradually, more and more banks are getting involved with helping start-ups raise funds. Avendus was fund-raising advisor for ShopClues.com, Freecharge, Bluestone, Saavn and Quikr in the first half of this year.

Bengaluru-based segment insight provider Tracxn says Indian information technology (IT) start-ups raised $4.75 billion in 2014, up from $259 mn in 2010. In the first half of 2015, about $3.2 bn was raised from PE and VC funds.  

“We have focused strongly on our culture, which builds around solution excellence, quality of talent and a client-first approach,” says Deepak. Avendus has almost tripled its investment banking team to 70 people, from 25 only five years ago. It also claims to have one of the highest closure rates in the segment. “Clients look for certainty when they get into deals and our high closure rates give them that confidence,” he says.

The bank began operations about 15 years earlier. It first got into the limelight by brushing its shoulder with Goldman Sachs as co-advisor to the sale of Satyam Computer after the Ramalinga Raju accounting fraud. Other marquee deals included the Patni Computer sale to iGate.

What Avendus has been able to build its business on is beyond IT and digital. It has five verticals, including consumers, infrastructure and industrial. Depending on business cycles, these verticals compete for the highest income earnings.

The Indian investment banking sector has been dominated by global banks which take the lion’s share of billion-dollar deals, on their balance sheet strength and global reach. This helps them capture the largest wallet share in M&A fee. But, at a time when large cross-border M&As have taken a back seat, home-grown banks which consider India their core market are showing better performance.