How a bunch of mid-market i-bankers became a big deal on the street

by / Wednesday, 20 April 2016 / Published in News & Updates

“Abhi bhi karna hai (you still want to do it?” Ramprasad and Jacob Mathew, two young investment

bankers with DSP-Merrill Lynch (DSPML), were greeted with this question by their boss Hemendra Kothari, when

they walked into his office a day after handing in their resignations at the firm. In the 24 hours since they had

resigned, the world had turned upside down .There had been a series of four coordinated terror attacks on the US,

including two on the World Trade Center in New York, on September 11, 2011, sending geopolitics and financial

markets across the world into a tailspin.

On the face of it, the timing couldn’t have been worse. As if quitting a well-paying, secure job at a high-profile

investment bank led by a veteran of Kothari’s ilk wasn’t enough, the global business environment had gotten clouded

and market sentiment had hit a new low. The duo had young families with no car or house. But the decision had

been taken. Undeterred by the uncertainty around them, they pooled in Rs 50,000 each to start their own investment

banking firm MAPE (Merger Acquisition and Private Equity).

Started in 2001, MAPE has closed over 140 transactions totalling $5 billion to date. Not just MAPE, the mid-market

space, which typically caters to deals ranging from $10 million to $100 million—which are not viable for top MNC

investment bankers such as EY, PwC and Deloitte and big domestic players such as Kotak Mahindra and JM

Financial, considering their operational and HR costs—spawned at least half a dozen strong players in the last one-

and-a-half decade.

According to industry estimates, they together, on average, close deals worth around $2 billion a year.

Going by their steady performance, it isn’t surprising why PE players find deal-making firms themselves as

interesting targets. A case in point is KKR picking a controlling 70 per cent stake in Avendus last year.

Small beginnings

Ramprasad and Mathew are two of many individuals who made humble beginnings in the financial market, starting

with one work station and small, part-time projects and went on to build large multi-destination operations that

managed complex financial deals worth millions of dollars.

In the initial days, Ramprasad and Mathew were working from their apartments in Chennai and Bangalore,

respectively. Ajay Garg, who joined the duo from DSP as co-founder within two months after they started, said his

hatchback was his first office. Their first deal—MAPE advised Dr Reddy’s on the acquisition of Group Pharma’s

business for Rs 27 crore—fetched them a “princely sum of Rs 50 lakh” and In the initial days, Ramprasad and

Mathew were working from their apartments in Chennai and Bangalore, respectively. Ajay Garg, who joined the

duo from DSP as co-founder within two months after they started, said his hatchback was his first office. Their first

deal—MAPE advised Dr Reddy’s on the acquisition of Group Pharma’s business for Rs 27 crore—fetched them a

“princely sum of Rs 50 lakh” and  helped them set up an office for themselves.

Another such mid-market investment banker, Mahesh Singhi, who founded Singhi Advisors, has a

track record of 800 deals worth $5 billion over two decades. He, incidentally, had started off with project finance

syndication deals. Singhi started in 1989 from a “one-table one-bed-room” workplace in central Mumbai suburb

Bhandup as a project consultant for small-time businessmen setting up factories. “For a mechanical engineer from

Kanpur with Rs 1,400 monthly salary, there was not much scope back then,” recalls Singhi.

Having figured that CFAs who advise on project finance make double the money he earns, Singhi gradually started

helping companies with loan syndication, public issue and debt finance, among others.

The financial meltdown in 2000 threw up another opportunity for him – advisory services for financial restructuring

and asset acquisition. “By then we were offering an entire range of services—debt financing, equity fundraising,

buyout deals and restructuring. And we discovered we are doing what is called ‘investment banking’,” Singhi says.

Along the way Singhi moved from Bhandup to a one-man cabin in Masjid Bandar, closer to the central business

district of Mumbai. In 2002, he set up a full-fledged office housing eight people at Marine Lines. Singhi Advisors

now possesses a posh office that houses 40 dealmakers at upmarket Bandra-Kurla Complex.

Riding PE deal wave

The mid-market investment bankers rose in tandem with a surge in private equity fund flow into the country,

according to Ajay Garg, who later parted ways with MAPE to start Equirus Capital. “Between 2006 and 2010, $45-

50 billion PE money that played out in the Indian market had a substantial role in the emergence of the mid-market

segment,” he says

Equirus, began with 10 people in 2007, now has 60 employees and has done close to 100 transactions worth $2.5

billion since starting operations.

“When I started in 2001-02, there were only a handful of bankers in the mid-cap segment. Now the space has

proliferated and a few of us scaled up quite well,” says Garg.

Mid-service investment bankers, like Garg and Singhi, were quick in spotting multi-national investment bankers’

limitations in servicing the unique requirements of small and medium entrepreneurs.

“We started with saying we would do smaller deals of Rs 100 crore and less for large Indian

companies. That was a small niche at that time and competition was fairly less,” says Mathew of


From Dr Reddy’s, MAPE went on to do deals for Tatas, Godrej, Mahindra, Wipro, L&T, Shriram and Marico.

“Nobody is bothered about your brand. The client will only look at whether what you say makes sense for him,” he

Singhi’s long-term association with promoters, many of whom started around the same time, helped him forge good

relationships. “Ours is a gorilla approach. We wait for our time,” Singhi says. Of the 800 transactions Singhi did,

108 were buy-out deals. He now focuses mostly on cross-border deals.

Singhi still follows the rule he began his journey with—to meet at least a company a day. He said the firm would not

take up assignments in which it does not have a lead role in deal talks. The biggest deal to date which Singhi has

facilitated is Adani’s $2.8 billion acquisition of Linc Energy’s coal mine in Australia.

Chennai-headquartered Veda Corporate Advisors tapped on the need of many small and medium businesses across

South India for investment bankers closer home. “We started off with the idea to be closer to the clients. Now we do

deals across India, especially in our strong forte of healthcare transactions,” says Sivaraj Sekhar, associate director at

In 12 years, Veda has done about 100 transactions worth $3.5 billion. “Many of them were repeat transactions from

our clients. We leverage our deep connections with promoters,” Sekhar says.

Veda has its genesis in the dotcom boom and bust of 90s—Chennai was a big playground of dotcoms.  Investors

who looked to pump in investment ranging Rs 2-3 crore in dotcom companies needed someone to help them with

such deals. Mantra Consultants, which was co-founded by Venkat Subramanyam and Vinod Kumar before they

launched Veda, focused on dotcom deals. Mantra was later acquired by EY. The duo walked out of EY to start Veda

“A new source of financing was coming into play. So far it was your own capital, money from friends and family or

loans that funded businesses. Venture funding gathered steam in early 2000,” Sekhar says.

Smaller deals aplenty

Some of the big investment banks have procedural slowness associated with large organisations when it comes to

responding to potential clients. According to a mid-market investment banker who does not wish to be named, large

MNCs split their hair over who would pick up the tab for travel and daily expenses at the initial stage of a deal talk .

Their smaller rivals run by founders themselves tackle such hassles much faster.

While top MNC firms still dominate the overall deal-making business, many domestic firms, most of which operate

in the mid-market space, have made strong inroads. The VCCEdge league table of top 20 investment banks shows

that 10 domestic firms did 25 M&A deals worth $6 billion in 2015 while foreign firms facilitated 48 such deals that

valued $12 billion in total. In PE deals, five domestic firms in the top 20 did 34 fundraising deals worth $3.6 billion

while 15 foreign firms facilitated 32 deals that valued $5 billion in total. Barring two-three, most home-grown firms

in the list are mid-market players.

“As for large international players, given their cost structures and unit economics of middle market deals, this space

is not necessarily cost effective for them to operate in,” says Sughosh Moharikar, managing director at MAPE.

“Mid-market space is large and there is a certain level of consistency in deal flow,” he says. “A bad year would be

when we end up doing five-six transactions. So in an average year, we do 12-13 M&As; 18-20 transactions would

mean it is a good year,” Garg says.

The venture investments that became frenetic in the recent years with the startup boom have only added to the

business of mid-market investment banking firms. For instance, some of the deals brokered by O3 Capital in the

recent months were in the startup space. It was the sole advisor of BigBasket’s acquisition of Delyver, Sequoia and

Blume’s investment in Chillr and DSG and Eight Road’s investment in Chai Point.

Some mid-market investment bankers such as Avendus and Equirus have diversified into other segments of financial

services such as wealth management and brokerage. Garg says while investment banking was the sole focus when

Equirus was started, it now accounts for only half of its revenues. Avendus owns a minority stake in the stock

broking business of IL&FS.

While deals up to $200 million largely remain the domain of home-grown firms, competition from international

firms is getting more intense, at least in some niche segments. Smaller overseas firms such as Jefferies LLC and

Moelis & Company have been steadily building their franchise in India. Jefferies advised on two M&A deals worth

$680 million last year, according to VCCEdge, the data research platform of VCCircle.

Large multinational firms such as EY are focusing on deals in the internet business space in India. Industry watchers

believe MNC banks have a futuristic interest in getting into small ecommerce deals; some of these internet startups

may emerge big and do IPOs overseas. They may even be potential buyers or targets in cross-border strategic deals

in future and an international investment bank would do well to nurture relations well in advance.

“Initially, a lot of direct deals were happening in e-commerce since a lot of people were chasing deals. Now,

companies are reaching out to investment bankers as deals have come down,” says Sekhar of Veda.

“Since large transactions are not happening, we are seeing guys from Mumbai coming to centres like Chennai

scouting for smaller deals,” he adds.

Growing interest among MNC banks and the proliferation of new firms make mid-market segment a tough space.

For instance, founded in 2010, Mumbai-based Merisis Capital Advisors did only half a dozen M&A transactions last

year, show VCCEdge data. Similarly, four years into operations, Bangalore-based Sprout Capital Advisors

facilitated just half a dozen small-sized startup fundraising deals. The strong churn in the industry could also throw

up some new heavy hitters. Kriscore Financial Advisors, which was launched in 2013, did an M&A transaction

worth $766 million last year. “The entry barrier in this industry is fairly negligible,” says an industry observer who

does not wish to be named.

“A fair amount of activity is happening in the mid to large segment in the PE space where domestic firms have done

extremely well. Most of them have niche capabilities; they work on a lower fee and their operating overheads are

much lower compared with foreign banks,” says Vimal Bhandari, MD and CEO of Indostar Capital Finance. A

financial markets veteran, Bhandari is familiar with the investment banking space. The issue is whether any of them

will metamorphose into a more meaningful institution. Most of them may continue to survive as a one-man, two-

men or three-men show,” he quips.

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