Shriram-IDFC deal to give investors exit option

Shriram Group, which has assets under management of Rs 1,00,000 cr, has been a darling of investors

Shriram Group’s announcement on its ongoing talks for a potential merger of its financial services businesses under Shriram Capital with IDFC Ltd and IDFC Bank could be a good news for the private equity (PE) and other investors who are looking for a possible exit in future.

Shriram Capital, an unlisted company, has investors including TPG Capital. TPG Capital invested $158 million in April 2010. Once the proposed merger with listed companies IDFC and IDFC Bank is completed, investors will have more liquidity and it will also give them exit route, which is one of the major attraction for the private equity players, say internal sources. IDFC and Shriram Group have said they are looking at merging Shriram City Union Finance (SCUF ) with IDFC Bank, while Shriram Transport Finance Company  (STFC) will remain an unlisted separate entity under IDFC, the holding company. The life and general insurance firms of Shriram will also come under IDFC if the merger takes place.

Shriram Group, which has assets under management of Rs 1,00,000 crore in its financial services business, has been a darling of the private equity investors. The group firms have attracted an investment of $1.08 billion infused by 17 PE players over a period of 12 to 15 years. This is excluding the strategic investments, including Piramal and Sanlam, and debt investments. Of the two firms, which are expected to merge with IDFC, SCUF has been a key attraction. According to Venture Intelligence data, SCUF raised $550 million from a number of PE players including Norwest, ChrysCapital, Merrill Lynch, CPIM Funds, ICICI Venture, Bessemer, and Apax Partners.

STFC has raised $138 million from TPG Capital, FMO, ChrysCapital and Reliance Capital. SCUF and STFC are the subsidiaries of Shriram Capital, the holding company of Shriram finance businesses.

These two firms have also given some good exits for investors. According to Venture Intelligence data, there were 17 exits — both complete and partial — from SCUF between June 2008 and July 2016. These have brought back a return multiple ranging from 1.91x for ICICI Venture to 4.97x for Norwest Venture Partners. STFC has seen a complete exit of TPG Capital for a return multiple of 6.05x in May 2013 and three partial exits by ChrysCapital and TPG Capital before this. ChrysCapital has seen the highest return multiple in two partial exits, compared to the other exits across the group, at 10.7x and 8.78x.

TPG Capital’s $120 million in Shriram Retail Holdings, Valiant Capital’s $34 million in Shriram Housing Finance and $15 million in Shriram Credit investments are also into BFSI industry. The non-finance businesses of the Group has also attracted PE investments. Shriram EPC, the engineering and construction business of the Group has attracted $66 million investment from investors including Bessemer, ChrysCapital, New Vernon, UTI Ventures and others between 2005 and 2008. Shriram SEPL Composites, which is into manufacturing sector, has received an undisclosed amount from Frontline Strategy in June 2008.

What makes the Group attractive to the PE players? R Thyagarajan, founder, Shriram Group, earlier said, "We aren’t focussing all the time on what our share (of the equity) should be. That’s because there isn’t a promoter family or anything like that behind the Group." 

Moreover, he added, the Group is transparent.

But beneath this simple synopsis is a seasoned group of companies, with businesses in tough-to-copy markets, home-grown talent and, interestingly, a management culture that’s native. The icing on cake, however, is how Shriram creates wealth for investors. In the  short term, not all investments have been rewarding, but in the long term, Shriram has been a terrific wealth creator.