L&T Finance to acquire Fidelity's Indian assets

L&T Finance on Tuesday said it had agreed to acquire the Indian asset management business of Fidelity International, for an undisclosed amount.

It would take another two months before the deal is closed, said the L&T Finance officials at a press conference on Tuesday. L&T Finance is part of L&T Finance Holdings, a listed company.

Mr Y.M. Deosthalee, Chairman & Managing Director of L&T Finance Holdings, said the valuation is in line with what the industry has seen in the last few years. The last few deals have happened at about 5-6 per cent of the AUM of the fund house being sold.

Going by this, the current deal could be worth around Rs 600 crore, said mutual fund experts. This is six per cent of the total assets of Rs 9,000 crore managed by Fidelity Investments, as of December 2011.

L&T Mutual Fund manages assets worth Rs 4,616 crore. With this, its total AUM would increase to around Rs 13,412 crore pushing L&T Mutual Fund to the 13th position from 24. In terms of equity AUM, the fund house would be the tenth biggest. Around 70 per cent of Fidelity's AUM constitutes the equity-side of the business.

“One of the considerations for Fidelity would have been the continuity of the employees. L&T may not have been the highest bidder, but it is buying out not only the funds but the employees of the fund house as well,” said Mr Dhirendra Kumar, CEO of Value Research, a mutual fund research company.

With regard to employee-retention, Mr Deosthalee said that most of Fidelity's employees would be retained by L&T Finance and that the Fidelity equity-management team would remain with them till the integration period is over.

The integration period, say industry experts, could be anywhere between a few months and a year. Approvals from both SEBI and Competition Commission of India would be required.

This is the second acquisition by L&T Mutual Fund in the last 3 years. In September 2009, it had bought over DBS Chola AMC for about Rs 45 crore.

BL Research Bureau adds: Why does Fidelity want to exit its Indian mutual fund arm? Profitability could be one reason.

Despite being in the business for six years, Fidelity India Fund Management Private Ltd — the asset management company — ended FY-11 with a loss of Rs 62 crore, well over twice the previous year's losses.

This is not surprising as the MF business is not easy to make profits in. But a comparison of Fidelity Mutual with a fund house of similar size — Axis Asset Management, a subsidiary of Axis Bank — reveals that Fidelity had quite a high cost structure.

Fidelity, with two-thirds of the money managed in equities, earned a hefty Rs 70.8 crore as asset management fee in FY-11 compared with Axis' Rs 25.5 crore. But Fidelity spent Rs 68 crore on its employees that year, 50 per cent higher than the previous year. In contrast, Axis Mutual paid its staff only Rs 25 crore last fiscal. Its business promotion expense was Rs 39 lakh. MFs such as Axis Mutual Fund, backed by their bank parents, clearly enjoy better economies of scale and maybe distribution presence.

Axis Mutual Fund closed FY-11 with Rs 45 crore losses.

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