Six months after the board of directors of IDFC Limited and IDFC Financial Holding Company Limited gave the nod to kick-start the divestment process for IDFC MF, it’s boiled down to a two-horse race between a Bandhan Group-led consortium and a combine led by Invesco MF for the asset, multiple industry sources in the know told Moneycontrol.
This is expected to be the biggest mutual fund transaction in recent times and follows the recent sale of L&T MF to HSBC MF in December for around Rs 3,188 crore.
“Post the submission of binding bids earlier this week, two sets of bidders - a consortium of Bandhan Group, GIC and ChrysCapital and a consortium of Invesco MF, Warburg Pincus and Kedaara Capital have been taken to the final round,” said one of the persons cited above.
The Hinduja Group which had submitted a binding bid via a promoter group entity of Indus Ind Bank is out of the race, two other persons added.
A fourth person said that the selected bindings bids are likely to be in excess of Rs 4,400 crore. Citi is learnt to be the sell-side advisor to the deal.
“Both Bandhan Group and Invesco MF are aggressively chasing this deal and when there is competitive intensity, suitors are usually given an opportunity in the final stage to improve or tweak terms and conditions, valuations and offer clarity on the path to deal closure before a winner is picked,” this person added.
Earlier this week, Moneycontrol was the first to report that three sets of bidders, namely a consortium of Bandhan Group, GIC and ChrysCapital, a consortium of Invesco MF, Warburg Pincus and Kedaara Capital and a promoter group entity of Indus Ind Bank are likely to submit binding bids for IDFC MF on March 21, the deadline. The report had also added that a consortium of Sundaram MF and Carlyle, which had earlier expressed interest, had dropped out of the deal.
All the four persons cited above spoke to Moneycontrol on condition of anonymity.
Moneycontrol could not elicit an immediate response from IDFC MF, Bandhan Group, Invesco MF, the PE funds and Citi. This article will be updated as soon as we hear from these firms.
THE SALE OF IDFC MF: REGULATOR’S STANCE, DEAL RATIONALE AND MORE
To be sure, market regulator SEBI isn’t comfortable with a pure-play private equity fund acquiring a majority stake in a domestic mutual fund. That was one of the key reasons why the Blackstone-L&T MF transaction fell through earlier. The regulator’s past stance explains the tie-ups between strategic players and private equity funds for IDFC MF.
The size and scale of IDFC MF and its strong management team are seen as two key reasons why the deal has generated strong interest.
IDFC MF has around Rs 1.2 lakh crore of AUM, is profitable (PAT of around Rs 80 crore in the first half of 2022) with 64 percent of its AUM in fixed income and 26 percent in equity. For FY20-21, the firm had reported a net profit of Rs 144 crore, a sharp rise of 81 percent over Rs 79.4 crore, registered in FY20, reports said.
According to the Moneycontrol report cited earlier, GIC had invested earlier in the Bandhan Group and to facilitate capital deployment and move beyond its core business, the group needs a value addition platform like IDFC MF.
The report added that Invesco is a well-performing equity MF and since the target IDFC MF is largely debt oriented, the deal makes good sense for the former. Moreover, its PE partner Warburg Pincus has an indirect understanding of the MF industry since it backs CAMS (Computer Age Management Services) which made its market debut in October 2020.
In December, IDFC First Bank set the ball rolling for the process of merging IDFC Ltd and IDFC Financial Holding Company with itself. Both entities are part of the bank’s promoter group. The sale of IDFC MF is seen as a precursor to the merger.Over the past few years, the domestic mutual fund segment has seen a lot of M&A activity. Other than the HSBC-L&T MF and the Sundaram MF-Principal MF transactions, the sector has also seen deals like Zerodha-backed Groww–India Bulls MF, White Oak-Yes Mutual Fund and Navi–Essel MF.