Bandhan Bank, Invesco in last round of bidding for IDFC MF

A full 6 months after the boards of IDFC Ltd and IDFC Financial Holdings approved the sale of IDFC Mutual Fund business, the eligible bidders have boiled down to two players in India. The final bidders are a Bandhan Bank led consortium and another consortium led by Invesco.

However, there is no confirmation still from the asset management company or from the sponsors and the news is culled purely based on reports in the media.

The mutual funds space has seen a lot of action of late. Sundaram MF acquired Principal MF and then HSBC MF acquired the much larger L&T Mutual Fund. The L&T MF sale at Rs.3,188 crore was among the largest deal in recent times.

The IDFC deal could be much larger because IDFC MF ranks among the top 10 mutual funds in terms of overall AUM. However, IDFC MF has a predominance of debt AUM and at the end of the day, it is the equity AUM that generates value for the AMC.

In fact, both the bidders represent consortiums. The first consortium is led by the Bandhan Bank group and comprises of GIC and Chrysalis Capital. The second consortium is led by Invesco MF and comprises of Warburg Pincus and Kedaara Capital.

Earlier, Hinduja Group had also submitted a bid for IDFC MF via its group company, IndusInd Bank. However, the group had eventually decided to withdraw the bid.

While not much is known on the valuation front, it is estimated that based on the equity AUM and current valuations assigned, the binding bids would be over Rs.4,100 crore. The final amount could be much higher.

Normally, it is very likely that both the shortlisted bidders would be given one final chance to tweak or modify their bids to make them more attractive. Being among the top-10 fund houses, IDFC MF should command a premium.

The regulator, even in the past, has been consistent that it was not comfortable with a pure play PE fund acquiring majority stake in a SEBI registered mutual fund. That was the reason, the Blackstone-L&T MF deal did not go through.
 

In the case of IDFC MF, the private equity players like Chrysalis Capital, Kedaara and Warburg Pincus have decided to latch on to a mutual fund bandwagon leading the dealing. That would be more acceptable to SEBI.

The decision to sell IDFC MF was driven more by a strategic decision by the board of IDFC to focus purely on its banking franchise and not dilute it with mutual funds. Currently, IDFC MF has Rs.125,000 crore as AUM and had reported net profits of Rs.80 crore in the first half of FY22 ended Sep-21.

Currently, it has 26% AUM in equities and 64% AUM in debt. IDFC MF is held by IDFC Financial Holdings, which is a 100% subsidiary of IDFC Ltd.

One of the main reasons for the IDFC group pushing through with the sale of IDFC MF is that the issue had generated a lot of heat in the previous AGMs and shareholders had even voted against an independent director for not doing enough.

The sale of IDFC MF is also a pre-condition for the eventual merger of IDFC Ltd into IDFC Bank. For now, it looks like one more big step towards consolidation in the mutual fund segment.