Angel Broking is in talks with Citigroup Venture Capital International (CVCL) and other shareholders of Sharekhan to buy a majority stake in the brokerage, according to two persons familiar with the matter.
If the deal materialises, Angel will have to pay at least Rs 800-1,000 crore (Rs 8-10 billion) for a 51 per cent stake, valuing the brokerage at Rs 1,500-2,000 crore (Rs 15-20 billion). The talks are at an early stage.
The combined entity will have 6,675 company-owned branches and franchises and 1.8 million customers.
It will command a 5 per cent market share in equity cash and derivatives, ahead of listed rivals such as Edelweiss, India Infoline, Motilal Oswal and Religare.
Both Angel and Sharekhan are predominantly retail-focused brokerages.
Dinesh Thakkar, chairman and managing director, Angel Broking, said, "We are looking for an acquisition in the retail broking space. However, it's too premature to talk about any deal."
Thakkar and his family own 87.65 per cent in Angel Broking, while International Finance Corporation (IFC) holds the rest.
Last year, according to media reports, Angel Broking was in talks with private equity (PE) firms, including Blackstone, TPG Capital and General Atlantic Partners, to raise Rs 300 crore (Rs 3 billion) by selling a part of its stake.
It had hired NM Rothschild & Sons for this.
Angel Broking would rope in a PE investor if it succeeded in acquiring a retail brokerage, Thakkar said.
"We would not like to comment on market speculation," said Sharekhan Director Jaideep Arora.
A Citigroup spokesperson declined comment.
An IDFC spokesperson said the company was not in talks with anybody for selling its stake. An e-mail query to Baring Private Equity Asia remained unanswered.
In March 2008, Baring had picked up a 12 per cent stake in Sharekhan for Rs 240 crore (Rs 2.4 billion), valuing the Mumbai-based brokerage at Rs 2,000 crore (Rs 20 billion).
Since then, the valuations of brokerages have fallen by 20-30 per cent due to slow growth and falling yields, say industry officials.
The leading stock brokerages are losing market due to the increasing share of options in the overall volume and competition from new foreign players.
In such a scenario, consolidation is underway. In the last two weeks, Way2Wealth has acquired a 51 per cent stake in Techno Shares and Mumbai-based Networth Stock Broking has merged with Ahmedabad-based Monarch Projects.
Last year, Edelweiss Capital bought Ahmedabad-based retail broking firm Anagram for about Rs 160 crore (Rs 1.6 billion).
With a tough initial public offer market, a conventional route for exits, PE firms are exiting investments through strategic sales.
The end of 2010 saw one of the largest exits in the Indian PE space, wherein PE majors Actis and Sequoia together made a $500 million profit on sale of Paras Pharma.