Mizuho leads race for acquiring Avendus, but other options remain in play

(From left): Avendus co-founders Ranu Vohra, Gaurav Deepak and Kaushal Aggarwal

Japan’s Mizuho Financial Group and Nomura have emerged as frontrunners to buy the stakes owned by KKR and some other shareholders in Avendus Capital in a preliminary bidding round, with Mizuho offering a more attractive deal to the exiting investors, people familiar with the matter said.

Private equity firm KKR, which owns 63 percent of Avendus Capital, is selling its stake alongside investors Gaja Capital and Alliance Tire Group’s founder Yogesh Mahansaria, putting over 80 percent of the investment bank on the block.

Avendus Capital has been valued at around Rs 4,500 crore- 5,000 crore, according to people familiar with the matter. It was founded in 1999 and operates investment banking, asset management and other related businesses. Co-founders of Avendus also included Kaushal Aggarwal and Ranu Vohra.

Mizuho is said to have assured the top management of Avendus, including co-founder and CEO Gaurav Deepak, that he and his team won’t be disturbed for at least three years after the acquisition.

While the details of what Nomura has offered couldn’t be ascertained, people familiar with the development said the Japanese bank’s local unit hasn’t warmed up to the deal.

“There seems to be a concern that if Avendus folds into the local arm of Nomura, the current leadership and teams may be overshadowed by the incoming team from Avendus,” said a highly placed person with knowledge of the matter.

KKR acquired a controlling stake in Avendus for $115 million in 2015 and pumped in about $55 million two years later, along with the other exiting investors. KKR’s total investment in the boutique PE firm is estimated at roughly Rs 980 crore.

A deal could be finalised as early as a few weeks from now, the people cited above said.

A spokesperson for Avendus declined to comment on the timeline for concluding the deal, saying it’s "too early in the process". An email sent to the KKR spokesperson remained unanswered till publishing the article.

Management buyout in the works?

Meanwhile, the people cited above said Gaurav Deepak is also trying to stitch together a deal to counter the likely offer from strategic investors. If Deepak succeeds, Avendus could be the first case of a successful management buyout in India’s financial services landscape.

“For many months now, Deepak has been in talks with several domestic private equity firms and family offices to put together a consortium of investors to better the offers which KKR has received,” a person familiar with the matter said, requesting anonymity. Deepak is believed to have engaged with several domestic investors, including Premji Invest and Uday Kotak’s family office.

An investment banker familiar with the development said Deepak is trying to assemble an offer from a bunch of financial investors rather than have a strategic investor at the helm.

“Gaurav has always had total control over the operations of Avendus. In many ways, Avendus is synonymous with him. With a strategic investor coming in, there is a possibility of this equation changing,” the investment banker explained.

MBO may have hit a rough patch

However, the people said Deepak’s efforts to arrange a consortium of investors may have hit a rough patch. “For now, it seems that bringing together a bunch of investors for a deal like this is difficult. There are many issues ranging from valuations to an exit option (for these investors) that can be a roadblock in the process,” said another investment banker aware of the matter.

“Ultimately, Avendus could go to a strategic investor and most likely to Mizuho,” another person said.