Four big-ticket deals this year in a row have brought mutual funds back to the limelight. Despite all negatives, the struggling sector witnessed stake sales at six per cent plus valuations, a level not seen in India for several years.
Foreign fund houses showed rising interest in local players and in a span of three quarters, three funds stepped in from abroad. The US-based Invesco recently picked a 49 per cent stake in Religare Asset Management, while Japanese Nippon Life bought 26 per cent in Reliance AMC. Besides, Axis AMC sold 25 per cent to the UK-based Schroders.
Will the sector see more such deals? According to investment bankers, chances are minimal. There is not much appetite among foreign players. Though, they added, India always looked interesting, given the untapped potential here. Poor balance sheets and regulatory constraints might not let the party happen.
|SECTORS UNDER STRESS |
Recent deals in mutual fund industry
|Year ||Acquirer ||Target ||Stake (%) ||Valuation |
(% of AUM)
|2012 ||Invesco* ||Religare AMC ||49 ||6.5 |
|2012 ||Nippon Life ||Reliance AMC ||26 ||6.64 |
|2012 ||Schroders* ||Axis AMC ||25 ||6.50-7.00 |
|2012 ||L&T Finance* ||Fidelity (India) ||Buyout ||6.2 |
|2011 ||Bank of India* ||Bharti Axa ||51 ||4.0 |
|2011 ||Goldman Sachs* ||Benchmark ||Buyout ||4.1 |
|* Valuation estimates by industry sources |
Source : Asset Management Companies
“Almost all high-valued deals have happened. Top players in the fund industry have already formed joint ventures with the respective foreign partners. All these (domestic players) have been making some money and garnered reasonable assets to survive, which helped them grab good valuations,” explains the head of an investment banking firm, who doesn’t want to be identified.
There are 44 fund houses, of which only a fourth are profitable. “This is one of the factors why big deals do not seem on the card. But one needs to understand that our industry is in its nascent stage and the country has huge potential,” says the chief executive officer (CEO) of a mid-sized fund house, also on condition of anonymity.
Though investment bankers and sector executives do not deny that there could be more deals in the offing, they add it might not be a stake sale, but partnerships in specific segments such as advisory and offshore businesses.
“In India, there are constraints in the business model and there are obviously issues in partnering a loss-making entity which lacks distribution network. More-over, more than half of industry assets are under the select top players which have already inked the deals,” explains another CEO.
According to an investment banker, instrumental in recent deals, higher debt assets are another deterrent for buyers. He says enquiries are there but on their criteria it is hard to find potential targets.