NEW DELHI|MUMBAI: Merchant banking firms, eager to grab a bigger share of the rising deal flow in India's technology industry, are expanding their teams and honing skills required to close deals in the digital sector.
The home-grown firms, some of which are just about a decade old, are creating specialised units to handle deals in sectors ranging from internet commerce to technology products, mobile and social media applications. As early movers in these sectors, they aim to shore up their advantage before larger merchant banking firms move into an area regarded as a "hot sector" for deal-making today.
"People have woken up to the opportunities on offer and have realised that there's a huge runway available to the market," said Aashish Bhinde, executive director of digital media and technology for Avendus Capital, an investment bank which brokered the recentRs 540-crore funding received by internet services firm Quikr and the buy-out last year of online ticketing firm redBus by South Africa's Naspers Group.
Avendus will expand its eight-person team in the next two months, while Chennai's Veda Corporate Advisors, Mape Advisory Services in Bangalore and Edelweiss Financial Services, could together hire over a dozen professionals in the near future. The buzz is based on the sheer size of the opportunity.
Since 2011, Avendus has structured transactions of about Rs 2,000 crore, with the average ticket size ranging between Rs 100 crore and Rs 700 crore. Most deals in the consumer internet and product technology space normally range between $10 million and $30 million. Big-ticket firms that would normally stay away from such transactions are now waking up to the opportunity.
"Consumer internet has scaled to a point where the bigger guys are getting interested," said Srikanth Narasimhan, director at Veda Corporate Advisors who is considering an expansion of his 11-member team to strengthen existing relationships.
Set up in 2003, the firm has advised marriage portal BharatMatrimony.com in a total fund raise of Rs 120 crore and brokered the deal for IndiaProperty.com, when it raised more thanRs 100 crore from Bertelsmann, Canaan Partners and Mayfield Fund.
"We are a relationship-oriented firm, and have been working with some of these companies since their early days," said Narasimhan, whose firm typically structures deals ranging between $20 million (Rs 119.7 crore) and $40 million (Rs 239.5 crore). "But there will be competition from the larger players now, and we don't expect the advantage to last," he said. This growing interest in the digital technology sector comes at a time when equity funding for core sectors such as engineering, construction and energy has dropped by 22 per cent last year according to a report by global consultancy Bain & Co. The paucity of deals has affected banker's fees, say to industry executives.
"There has been a slowdown in the last two years in deals (M&A, PE) except in the technology space, which is going great guns," said Ashish Tripathi of Edelweiss, whose firm has doubled the size of its technology, media and telecom team. The firm has a total strength of 60 bankers countrywide.
Others such as Mape Advisory Group, which was founded in 2011 by Jacob Mathew and M Ramprasad are also cashing in. Mape, which on average, structures deals of about Rs 90 crore, is also in expansion mode. "We have created a small group internally that will look at the emerging technology space," said Mathew whose firm has about a dozen bankers on its rolls now.
Also, the growing preference amongst entrepreneurs for established bankers handling large transactions has raised a red flag for mid-sized firms. "We wanted an investment bank that could get us a blue chip global fund and had a good understanding of our business," said Manav Garg, founder of Bangalore-based commodity trading software developer Eka Software Solutions.
The company chose Deutsche Bank as a broker for the most recent fund raise of Rs 250 crore by his company. US-based firm Signal Hill, which until now had one office in India, has also recently opened a second one in Mumbai and has roped in Nitin Bhatia from Edelweiss.