Mumbai-based investment bank Edelweiss Capital has reached an agreement to acquire Ahmedabad-based brokerage Anagram Capital for Rs 164 crore in an all-cash deal. Anagram, which has over 137 branches and 180,000 clients, will give Edelweiss a presence in the retail brokerage space. Anagram reported revenues of Rs 100 crore for the nine-month period ending December 2009.

Anagram will operate as a 100% wholly owned subsidiary of Edelweiss. The transaction is still subject to regulatory approvals, said Edelweiss in a statement to the exchanges. Anagram is owned by the promoters of garment manufacturer Arvind Ltd, the Lalbhai Group. It has more than 1,300 sub brokers and Rs 800 crore of average daily equity trading volume.

"This acquisition is in sync with Edelweiss' plan to expand retail brokerage business. What makes this transaction exciting is the minimal overlap between the broking operations of both the companies," said Rashesh Shah (in pic), chairman of Edelweiss Group. The firm reported revenues of Rs 900 crore and a net profit of Rs 209 crore for FY09.

The deal will give Edelweiss, who mainly has institutional clients, a distribution network with access to retail customers. Having a retail network is also important for managing IPO mandates. Edelweiss has recently forayed into areas like life insurance with Japan's Tokio Marine Holdings and asset management, where the retail network will come in handy.

With a revival in the capital markets, the trading volumes have also improved which is likely to increase the brokerage fees.

Interestingly, PE firm Halcyon Resources and Management had agreed to pick up a 20% stake in Anagram for an enterprise valuation Rs 165 crore back in July 2007. Since the deal was done through optionally convertible securities, the PE firm decided not to convert its options due to a fall in markets. With the Edelweiss deal, the valuation of Anagram seems to have come back to the 2007 levels.

While 2009 did not see any major action in the brokerage space, there were several big deals in 2008. HSBC India picked up a 74% stake retail brokerage house IL&FS Investsmart Ltd (since renamed HSBC InvestDirect) for Rs 1,084.5 crore ($261 million) in May 2008. This was followed Aditya Birla Nuvo acquiring 56% stake in Chennai's Apollo Sindhoori Capital at a valuation of Rs 355 crore.

The shares of Edelweiss moved up by more than 3% at Rs 464 after the announcement before coming down to Rs 453 levels by 11:30 AM.

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