In a deal that could set a trend in terms of valuations, L&T Finance (LTF) today announced the acquisition of DBS Cholamandalam Asset Management Company (AMC) for a consideration of Rs 45 crore – a mere 1.56 per cent of the AMC’s August assets of Rs 2,893.16 crore.
“Consummation of this transaction is subject to appropriate regulatory approvals, which are to be obtained,” said LTF. The company, in a statement, said that this acquisition would help synergise with L&T’s existing financial service business by deepening and widening its services.
Market sources said that Sanjay Sinha, the chief executive officer (CEO) of DBS Chola AMC and the entire 80 member team are likely to be retained.
Senior executive at fund houses said that the track record and brand played an important role in deciding the value, and not solely the assets. More such deals at lower valuations are expected to come up in the industry.
“This is one of the lowest valuations of a fund management company,” said a chief executive officer of a fund house.
Last November, Religare took over Lotus Mutual Fund at an undisclosed sum. Industry experts said that 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 (IDFC) bought Standard Chartered Mutual Fund for Rs 831 crore or 5.7 per cent of the assets.
L&T has a presence in the financial service sector through its two wholly owned subsidiaries – L&T Finance and L&T Infrastructure Finance. Both of them are predominantly into construction equipment finance, and financing of tractors and commercial vehicles. On a consolidated basis, these entities have an asset size of over Rs 9,000 crore.
In recent months, the finance companies have charted out plans to foray into the general insurance and private equity space.
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 while DBS is separately trying to strengthen its grip in the banking business.
DBS Cholamandalam AMC had 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 with over 2,00,000 customer accounts at the end of August 2009. The company is present at over 20 locations in the country and also has a strong distribution network.
