Strategic Diligence on a Brokerage Company for a Private Equity Firm

strategic diligence

Client Challenge

The client, a private equity firm providing growth financing to small and medium companies was looking at investing in a Mumbai based financial services firm, engaged in the business of retail and institutional brokerage and equities arbitrage. The client turned to UC Strategy to conduct a due diligence before investing in the brokerage firm, to cover the following issues:

  • The marketing strategy for franchisee and customer acquisition
  • Ability to retain their franchisees & ability to retain their customers
  • Competition placement & difficulties, when the company scales up
  • The kind of products and services that will lead for customer loyalty and higher spend per customer (asset management services, mutual funds etc.)

Our Approach

To provide a diagnostic study of the brokerage company for the client, UC Strategy adopted the following approach:

  • Built context to analyse the brokerage industry in India
    • Emergence of the Indian economy and equity markets
    • Trends in asset classes and future of the asset classes
    • Broking models followed in India
    • Key success factors of each of the models
  • Assessed the financial service firm versus the competitors in the market on various parameters
    • Financial assessment covering the key ratios like profitability and leverage ratios, revenue contribution by channel, customer and asset class
    • Operational assessment covering the current operational model, presence across the country, delivery channels, new initiative and risk management
    • The top management and second in-line people in the organisation
    • The future path of evolution
  • UC Strategy arrived at a future earning scenario based on the competitive landscape, operational and management capabilities of the firm. The customer and franchisee acquisition strategy and the likely trend going ahead in the various asset classes was also documented
  • A go/no go decision was based on the returns achievable based on scenarios in an optimistic equity market and a flat equity market.

Our Impact

The client received a detailed insight of the brokerage industry in India. It also received a business model with its different scenarios to decide whether to invest or not in the brokerage firm.

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