The low valuation may set a trend, say analysts.
In a deal that could set a trend in valuations, L&T Finance (LTF) today announced the acquisition of DBS Cholamandalam Asset Management Company (AMC) for Rs 45 crore.
While this translates into a valuation of 1.56 per cent of the AMC’s August assets of Rs 2,893.16 crore, an L&T Finance statement said the consideration was adjusted for cash balance and current assets. This implies that the actual cash outgo for L&T Finance will be lower than Rs 45 crore, though both the companies did not disclose the cash balance with DBS Chola AMC. At the end of March 2009, DBS Chola AMC had current assets, including cash and bank balances, of around Rs 25 lakh. It had also extended loans of Rs 1.4 crore.
“Consummation of this transaction is subject to appropriate regulatory approvals,” said LTF. It said the acquisition would deepen and widen L&T’s existing financial services business.
L&T has a presence in the financial services sector through two wholly-owned subsidiaries – L&T Finance and L&T Infrastructure Finance. Both are predominantly into construction equipment finance and financing of tractors and commercial vehicles. They have a consolidated asset size of over Rs 9,000 crore.
In recent months, a number of finance companies have announced plans to foray into general insurance and private equity space.
Senior executive at fund houses said track record and brand played an important role in deciding the value and assets were not the only consideration. More deals at lower valuations were expected, they said.
“This is one of the lowest valuations for a fund management company,” said the chief executive officer of a fund house.
Last November, Religare took over Lotus Mutual Fund for an undisclosed sum. Industry experts said this deal was struck at a pay-to-buy model because the fund house was facing a severe financial crunch. In April, 2008, Infrastructure Development Finance Corporation bought Standard Chartered Mutual Fund for Rs 831 crore, that is, 5.7 per cent of the assets.
Cholamandalam DBS is a joint venture between Chennai-based Rs 15,646 crore Murugappa Group and DBS Bank of Singapore. Apart from the mutual fund business, the two entities are partners in a non-banking finance company. DBS is separately trying to strengthen its banking business.
DBS Cholamandalam AMC reported a loss of Rs 38 crore for the year ended March 2009. The AMC, formed in 1996, has been managing assets worth Rs 3,000 crore and had over 200,000 customer accounts at the end of August 2009. The company is present in over 20 locations in the country and has a strong distribution network.
Also read:sept 8: L&T Finance among suitors for DBS Cholamandalam AMC
