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PE firms partner each of four IDFC Mutual Fund suitors


Buyout group TPG has joined forces with an investment vehicle of the Hinduja family and Indusind Bank, also owned by the same business family to form a consortium and make a firm bid for IDFC’s mutual fund business, said people aware of the development.

The TPG-IndusInd combination is competing with three other such groups that have got formed ahead of the mid-March binding bid deadline. It is after a long time that each of the shortlisted contenders — home grown banks and global asset management firms — in fray have tied up with a private equity firm.

Sundaram Mutual Fund has partnered Carlyle, while Invesco and Warburg Pincus have created a consortium for the potential Rs 5,000 crore buyout, the people add.

Bandhan Bank and a promoter entity have GIC of Singapore, which is also a co-investor in the bank along with Temasek.

Carlyle, TPG, IndusInd, Warburg and Bandhan declined to comment. Mails sent to GIC, IDFC AMC, Invesco and Sundaram remained unanswered at press time Sunday.

In September last year, boards of IDFC Ltd and IDFC Financial Holding Company ratified a proposal to divest the mutual fund business, IDFC Asset Management Co Ltd.

Agencies

Last December, IDFC First Bank set the ball rolling for the process of merging IDFC Ltd and IDFC Financial Holding Company with it. Both entities are part of the bank’s promoter group.

Citigroup was roped in and is running a formal process to find a buyer for the MF business, sources said.

IDFC Mutual Fund had Rs 1.26 lakh crore of assets under management as of June 2021. IDFC Mutual Fund’s average AUM was growing 19.3%, outperforming the industry growth of 8.6%, its annual presentation for fiscal 2021 said. “Our full-year market share increased 4% in FY21 from 3.7% in FY20,” according to the presentation. For FY21, the firm had reported a net profit of Rs 144 crore, registering growth of 81%.

Established in 2000, IDFC AMC is one of India’s Top 10 asset managers with on-the-ground presence in over 46 cities, and investors in more than 375 cities and towns, its website showed. The company offers over 60 mutual fund schemes, the website showed.

Among the bidders, Sundaram is small > with AUM of Rs 37,000 crore and an acquisition would provide it a pan-India access. Invesco is also small, with AUM of around Rs 45,000 crore.

IndusInd Bank is keen to enter the mutual fund business so that it is able to create a new fee-based income channel. If its IDFC AMC acquisition plan goes through, IndusInd Bank will get a ready-made and operational MF business without requiring to secure a licence from the Securities and Exchange Board of India. IDFC AMC already has a licence that can be transferred in IndusInd’s name. Interestingly though, the Hinduja family investment vehicle is leading that consortium and not the bank.

Bandhan Bank too has been exploring means to diversify.

Although private equity funds were keen to buy mutual fund businesses, the market regulator had raised certain questions on proposed acquisitions, which forced them to partner with strategic investors. Sebi maintained a stand that it was not comfortable with private equity firms owning a majority stake in mutual funds because of the short-term nature of these sponsor funds. This was one of the reasons why Blackstone decided to call off negotiations to buy L&T Mutual Fund.

“The mutual fund industry in India is growing significantly. While there are new players entering the market (like Bandhan), there have been consolidation plays in the past in India in a bid to be among the top players. The potential IDFC mutual fund transaction provides a further opportunity for new players to enter in a big way or existing players to consolidate and further cement their place in the asset management space,” said Samir Sheth, partner and head – Deal Advisory Services, BDO India.

Consolidations are happening in the mutual fund industry. In last December, HSBC announced acquisition of L&T’s mutual fund business for around Rs 3,200 crore.

In May last year, investment platform Groww agreed to buy Indiabulls Mutual Fund. In January last year, Sundaram, which is a contender to the IDFC Mutual Fund, acquired Principal AMC.

The Indian mutual fund industry’s average assets under management stood at a record of Rs 38.89 lakh crore >, according to the Association of Mutual Funds in India.

IDFC shares remained flat throughout the year, despite plans of divestment of units.



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