Axis wins Enam, buys its best for 2,067 cr

WIN-WIN DEAL POSITIVES FOR BOTH SIDES

Snaps Up Investment Banking, Institutional & Retail Broking Enam exits with handsome gains while deal will pay off for Axis in long term given strengths & profitability of investment banking & institutional broking units

AMBITIOUS private lender Axis Bank has snapped up the best of the house of Enam—one of Dalal Street's most influential brokerage-cum- investment banks.
    Axis, led by CEO Shikha Sharma, a former ICICI Bank director, will acquire Enam Securities' key businesses such as investment banking, institutional and retail broking, and distribution of financial products in an allstock deal worth 2,067 crore.
    With this, Enam will exit its famed agency businesses that will be demerged from Enam Securities to a wholly-owned Axis subsidiary. Close to 400 Enam officials will move to the new outfit that will be headed by Manish Chokhani—a key member of the Enam management and one of the four shareholders in Enam Securities.
    Mr Chokhani, and the founders of Enam—Nemish Shah, Vallabh Bhanshali and Jagdish Master—will own a 3.3% equity in Axis after the bank issues new shares to them. The transaction will need approvals of RBI, Sebi, and the high courts of Gujarat and Mumbai.
    The story was broken by ET NOW, this paper's business channel, at 12:35 pm on Wednesday, ahead of other broadcasters and wire services. Later in the afternoon, ET NOW correctly reported the swap ratio, which is 5.7 Axis Bank shares for one Enam share.
    Mr Bhanshali, Enam chairman and the group's public face, is reluctant to call the deal a "selloff" or "acquisition". "This is a match of similar cultures, and synergies will kick in from Day 1... You may say we are known for IPOs, but for me Enam represents a set of values that will continue to survive," he said while jointly addressing the media with Ms Sharma.
    Mr Bhanshali, whose firm has dominated the public issue market for 25 years and published the first nine research reports in an era when few attached importance to them, has been invited by Axis to join the bank's board. This, however, will have to be cleared by RBI.
    As part of the deal, Enam and its founders will enter into a five-year non-compete agreement with Axis, and the private bank will have the right to use the Enam brand for two years. Deal came as a surprise to many
FOR Axis, the once-conservative lender that is undergoing a slow transformation under its new CEO, the deal is a strategic move to get into a lucrative business and shore up fee income, with Enam managing most large equity offerings, including the recent issuances by Coal India and Power Grid Corporation. "Since the days I was part of the start-up team in ICICI Securities, I have watched Enam, its franchise, quality and sustainability. This complements the corporate banking and debt market franchise of Axis," said Ms Sharma.
    Senior bankers made a mental note of the deal, which was announced on a public holiday and came as a surprise to many. "It's a good move. All customer-centric banks need to offer a bouquet of products and this will strengthen the bank's corporate banking business," said Madhvi Puri Buch, CEO & MD of rival ICICI Securities and Ms Sharma's former colleague.
    According to Rashesh Shah, chairman & CEO, Edelweiss Capital, the deal is fair priced. "Enam is expected to have a profit after tax of 100 crore for the full year. So, 2,000-odd crore for the full stake looks all right," he said. For the seven months between April 1 and October 20, the Enam arm recorded a pre-tax profit of 77 crore against a turnover of Rs 182 crore.
    The deal with Axis excludes Enam's portfolio management service, asset management company and assets under Enam Holdings—the group's investment management arm—all of which will stay with Enam.
    "With Axis Bank's distribution platform of almost 1,100 branches and Enam's retail network, the combined entity will have an opportunity to build a dominant retail franchise as well," said a joint press statement.
    Anil Singhvi, former Gujarat Ambuja CEO and currently an investment banker, advised Enam while Macquarie Group advised Axis on the deal. "Today, ideas alone don't work... you need balance sheet strength," said Mr Singhvi, whose long association with Mr Bhansali and Ms Sharma helped him cobble the deal in less than a month.

SHIKHA SHARMA CEO & MD, AXIS BANK

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