PE groups Permira, CVC Cap, EQT in fray to buy Nuvama Wealth from PAG

Mumbai: Private equity buyout groups CVC Capital Partners, Permira and EQT are in talks with Asia-Pacific-focused private equity firm PAG to buy its controlling stake in Nuvama Wealth Management Ltd (NWML), formerly Edelweiss Wealth Management, in a buyout that's potentially worth $1.6 billion, said people in the know.

Competing with them is HSBC, Europe's largest bank by market capitalisation, said the people cited, in a hotly contested race, as Nuvama's role as the local trading partner of Jane Street came under investor scrutiny.

India's stock market regulator has barred Jane Street from the local securities market. Nuvama's shares plunged 11% in trading, the most in three months, after the interim order - over allegations of market manipulation by Jane Street - became public on Friday.

The four contenders listed above have been shortlisted after non-binding bids were submitted late last month. Due diligence is ongoing with an aim to submit binding bids by this month's end, a deadline that most analysts said will be difficult to meet.

Agencies

A Fallback Option

Also, Warburg Pincus is said to have made a verbal offer with an indicative value for the business and is being kept as a fallback option.

Domestic fund ChrysCapital is also said to be in the fray. Sources said the potential buyers may be open to a smaller transaction for a lower stake and look to team up with others as co-investors. Consortia are likely to get formed as the cheque size is expected to be large, said the people cited.

As promoter, PAG owns 54.78% of Nuvama, which has a market capitalisation of Rs 26,150.87 crore. Any deal involving a change of control will trigger an open offer for 26% of shares held by minority shareholders. At Friday close, PAG's stake is worth Rs 14,383 crore.

With the stock surging 114% since the firm's listing in September 2023, PAG had decided to start a sale process earlier this year and appointed investment banks JP Morgan and Morgan Stanley as advisers. After an initial approach to strategic buyers, a wider circle of potential suitors including buyout funds were tapped. In the past year, the stock has jumped 55.02%.

PAG, CVC, EQT, Permira and ChrysCap didn't respond to queries.

HSBC declined to comment. Sources close to the bank said it's not pursuing the acquisition.

Nuvama offers wealth management solutions, covering investment advisory, estate planning, asset management services, investment management, lending and broking services for individuals, institutions, senior executives, professional investors and family offices.

NWML is the flagship entity of the Nuvama Group that also offers institutional equities, broking, custodian and settlement services and investment banking services to institutional clients. It was previously a wholly owned subsidiary of Edelweiss Financial Services Limited (EFSL), which announced the sale of a part of its stake in the wealth management business to PAG in September quarter of FY21.

Revenue from asset services
Following completion of the demerger process in June 2023, it got listed in September that year. PAG invested about $325 million for a controlling stake in Nuvama in March 2021.

Even though 47% of revenue in the March quarter of FY25 came from asset services (custodian, settlement), equities and investment banking, at the profit after tax (PAT) level, 35% came from wealth management. Around 51% of consolidated PAT came from asset services and 18% from equities and investment banking, which includes M&A and capital market advisory for the full FY25.

Jane Street is among the largest clients of this vertical, sources said. While some analysts estimate 40% of business comes from that single client, this could not be independently verified. As per a company presentation, the vertical handled $14.7 billion of institutional assets in FY25, a breakout year when the business saw its revenues jump 85% from the year before.

Though Sebi has not named Nuvama in its order, it got caught in regulatory crossfire as it had earlier responded to the NSE's investigation into Jane Street's trades, which the exchange closed in May.

Strong show in FY25
Overall, Nuvama reported a strong performance in FY25 with a 58% YoY increase in profit after tax and a return on equity of 31%. The implementation of regulatory measures for strengthening the index derivatives framework in November 2024 and the moderation in market trends saw Nuvama's revenue from the institutional equities and investment banking segments declining by 27% in March quarter of FY25 from the best-ever performance in Q2 of the same fiscal year.

According to ICRA, the franchise’s strengths are partially offset by exposure to the inherent volatility in the capital markets besides regulatory uncertainties and associated franchise and reputational risks.

“The Jane Street episode will be a one-time hit but not have structural impact,” said one of the executives cited. “However, valuation may be likely to get impacted if the matter drags on.”

Most investors are keen on Nuvama because of its wealth platform. The sector in India is fragmented across different types of players. Currently, wealth under professional management in India stands at around 15%, as compared to ~75% in matured markets. Indian wealth managers have $130-160 billion of assets under management (AUM) of India’s $1-1.2 trillion wealth management market.