Employees of more companies seem to be looking to buy out promoter stakes

Financial services and asset management firms see such more buyouts

The employees of more companies seem to be writing cheques to buy out promoter stakes. 
 
Wadhawan Global Capital, the parent company of Dewan Housing Finance Corporation, has been in talks with its wealth management arm’s employees for a buyout of WGC Wealth, according to two sources familiar with the matter. The firm has garnered assets worth around Rs 2,000 crore, according to wealth management tracker Asian Private Banker.
 
In another instance, Swapnil Pawar, now the founder of Asqi Advisors, bought out the India arm of a US-based hedge fund where he was managing the domestic operations. The deal was conceptualised in March. It was discussed over the next couple of months and completed in June. Pawar completed the buyout with his own capital and some from friends and family. “We intend to set it up as a provider of quantitative asset management services, and hope to venture into segments adjacent to capital markets, including hedging services, credit analysis, and others,” said Pawar.
 
Wadhawan Global Capital declined to comment.
 
An analysis of the data from deal tracker Refinitiv (formerly Thomson Reuters Financial & Risk Business) shows that there had only been eight other transactions announced in the last decade where the management has done a buyout. Five of these have involved an investor group.

Other instances of buyouts, which involve Indian assets or individuals, include international banking group Standard Chartered’s sale of its private equity portfolio. The transaction involved a management buyout by Affirma Capital.  There was also an attempt by employees bidding for clothing label Reid & Taylor (India). The National Company Law Tribunal ordered liquidation of the firm after investors said to be backing the staff were unable to prove their net worth in February. Earlier in the month, it was reported that the pilots of Jet Airways were attempting to bid for the firm.
 
Mehul Savla, director at boutique investment bank RippleWave Equity, said there are multiple factors which may fuel a rising number of such deals. One of them is the nature of the industry. People-oriented industries like asset management and financial services see more instances of such buyouts. Another factor could be market conditions. Periods of difficult or turbulent economic conditions favour employee buyouts because promoters may be in need of capital, and big-pocket institutional investors are out of the market. Employees are more likely to invest in a business that they are deeply familiar with, especially if they can manage to garner some financial support.
 
“The management would never have the financial wherewithal,” said Savla. 
 
“Businesses in the services sector are people-oriented and don’t need the same amount of capital as the manufacturing segment. In that sense, buyouts are easier, especially financial services. One could well see more such instances in the asset management, wealth, and technology segments,” said Pawar.
 
At least six of the eight deals involve services sector companies. They range from financial services and technology to telecommunication services.