A consortium led by Bandhan Financial Holdings Ltd (BFHL), which won the bid to buy IDFC Asset Management Company for a proposed consideration of ₹4,500 crore, is looking to strengthen the AMC’s product portfolio and enhance its distribution network by tying up with banks and small finance banks (SFBs). The consortium is hopeful of receiving the necessary approvals and expects the process of acquisition to be completed in the next nine to twelve months.
BFHL will use part of the ₹10,600 crore that it received while diluting its stake in Bandhan Bank to pay for the acquisition.
Focus on equity-based funds
According to Karni S Arha, MD of Bandhan Financial Holdings, IDFC AMC has a strong portfolio of debt based funds. The aim would be to add more equity based funds targeted at retail investors.
“Our immediate focus (post acquisition) will be to scale up the business. IDFC has more debt-based funds; we will look at adding more equity-based funds aimed at the retail investors. We will also look to strengthen the distribution footprint by tying up with banks and SFBs,” Arha told BusinessLine.
Sale of entire AMC
The boards of IDFC and IDFC Financial Holding Company (IDFC FHCL) had on Wednesday approved the sale of the entire shareholding of IDFC AMC and IDFC AMC Trustee held by IDFC FHCL to a consortium comprising of Bandhan Financial Holdings, Lathe Investment (affiliate of GIC), Tangerine Investments and Infinity Partners (affiliates of ChrysCapital).
BFHL will hold 60 per cent while GIC and ChrysCapital will hold 20 per cent each in the AMC.
JM Financial acted as the financial advisor to the Bandhan-led consortium. The proposed transaction is expected to be completed upon receipt of requisite regulatory and other approvals, as applicable, and closing related actions mutually agreed between the parties.
IDFC AMC has assets under management worth ₹1.25-lakh crore. The financier would focus more on customers from semi-urban and rural areas since a majority of people in these areas do not have access to multiple savings instruments. Bandhan, which started its journey by lending to the bottom of the pyramid and building its microcredit loan book, understands the market well and would be able to capitalise on the strength, sources said.
The mutual funds industry, which has been growing at around 16–17 per cent on a y-o-y basis for the last ten years, has been witnessing quite a bit of activity and consolidation, Arha said, highlighting the opportunity that the sector offers.
Inorganic growth opportunities
According to Arha, the acquisition fits with what the Bandhan Group endeavors to do — be a holistic financial services group. BFHL also plans to look at other financial services, as permitted within guidelines, such as asset management businesses, and insurance businesses including life and general, among others.
“We may look at entering the insurance space within the next two years. We will look at both organic and inorganic routes, but inorganic route would be comparatively easier for venturing into the insurance sector,” he said.
BFHL is also one of the resolution applicants for Reliance Nippon Life Insurance. As per Reserve Bank of India regulations, a bank is not allowed to venture into other businesses and so, the holding company structure is used.