Bandhan Financial Holdings won the bid to buy IDFC Asset Management Company in a deal valued at ₹4,500 crores, marking the entry of a financier that began its life as a bottom-of-the-pyramid lender into the ritzy business of asset management dominated by bulge-bracket financial groupings such as ICICI, HDFC and the State Bank of India. This is the largest deal to date in the Indian asset management space.
The consortium led by the Kolkata-based owner of Bandhan Bank trumped the US-based Invesco that partnered with buyout firm Warburg Pincus and Kedaara Capital, paying 3.6% of the assets under management. The winning group includes Lathe Investments Pte. Ltd, an affiliate of Singapore sovereign wealth fund GIC, and local private equity fund ChrysCapital.
JM Financial was advising the Bandhan-led consortium in the deal.
Addition of mutual funds business to Bandhan’s portfolio of tiny, small- ticket and housing loans would improve its ability to cross sell financial products to millions of customers who do not have access to savings instruments.
“Invesco wanted to have more time for due diligence while the seller was hurrying to close the deal,” said an executive familiar with the matter. This added to the advantage of the Bandhan group, which is on an expansion spree with ready resources.
Mutual funds business is among the fastest growing segment of the Indian financial services as record low interest rates are leading to savers moving away from conventional bank deposits. Furthermore, the high returns of the past two years and the tighter regulations have led to mutual funds becoming safer and higher yielding investments.
IDFC Asset Management, founded in 2010, is among the top 10 companies in investment management, especially fixed income, where it is among the best performers. In February, it had ₹1.25 lakh crore of assets under management.
The board of directors of IDFC Ltd and the board of directors of IDFC Financial Holding Company at their respective meetings on Wednesday have approved sale of the entire shareholding of IDFC AMC and IDFC AMC Trustee.
“This transaction is a significant milestone in our plan of unlocking value and the consideration demonstrates the strong position of IDFC AMC in the Indian mutual fund space,” IDFC chairman Anil Singhvi said. “We have achieved signing within six months of the board’s decision to divest, which further demonstrates IDFC board’s commitment to consummate the merger of IDFC and IDFC Financial Holding Company with IDFC First Bank,” he said.
The deal will be completed after regulatory and other approvals. “The consideration for the proposed transaction is ₹4,500 crore on a fully diluted basis and subject to customary price adjustments at the closure,” IDFC said in a regulatory filing to stock exchanges.
This is the second big acquisition in the mutual fund space in recent times after HSBC Asset Management (India) Pvt Ltd’s buyout of L&T Investment Management from L&T Finance for $425 million in December last year.
ET in its edition dated April 6 reported that the Bandhan-led consortium was the likely winner.
“We believe that the asset management industry will be one of the fastest growing segments in the Indian financial services industry and hence has been identified as a key vertical in our future growth plans. The acquisition of IDFC AMC provides us with a scaled-up asset management platform,” Bandhan Financial Holdings managing director Karni S Arha said.
The acquisition marks the Bandhan group’s first attempt to expand its presence beyond banking. The promoter of Bandhan Bank is also looking for an opportunity to acquire a life insurance firm to expand its presence across financial services.
It had offered to buy out Future group’s stake and acquire a controlling interest in Future Generali India Life Insurance Company — a three-way joint venture between the Future Group, Industrial Investment Trust (IIT) and Generali, an Italian insurance and asset management giant. However, with Generali announcing its intent to acquire a majority share in the JV, Bandhan has started exploring other opportunities, people familiar with the matter said.
According to Reserve Bank of India regulations, a bank is not allowed to venture into other businesses and therefore the holding company structure is used toward that end. It will use a part of the 10,600 crore that it received when diluting its stake in Bandhan Bank to pay for the acquisition.