L&T Finance Ltd, a subsidiary of L&T Finance Holdings Ltd, has acquired Rs 8,881 crore AUM of Fidelity’s Indian mutual fund business on Tuesday for an undisclosed amount.

The company executed definitive agreements to acquire FIL Fund Management Private Limited (Fidelity AMC) & FIL Trustee Company Private Limited, the companies carrying on the mutual fund business of Fidelity in India, subject to regulatory approvals, the press release said.

Early this year, Japan’s largest life insurer Nippon Life Insurance Company signed an agreement with Reliance Capital Ltd to buy 26 per cent stake in Reliance Capital Asset Management Ltd (RCAM) for Rs 1,450 crore ($290 million). The deal valued India’s second largest asset management firm at Rs 5,600 crore ($1.1 billion) or 6 per cent of assets under management.

If this is taken as a benchmark, L&T Finance would have shelled out around Rs 532 crore($104 million). But given that Reliance Capital might have attracted a premium valuation given its market presence, the latest deal could have been struck at around 5-5.5 per cent of AUM which would translate into a deal size of around $87-97 million, according to VCCircle estimates.

Fidelity AMC had a market share of 1.3 per cent and an average AUM of RS 8,881 crore for the quarter ended December 2011 with around 68 per cent of its assets being equity oriented.

Y M Deosthalee, chairman and managing director of L&T Finance Holdings Limited, said, “With this acquisition we are one step closer to achieving our vision of being among the top players in the Indian mutual fund industry. This acquisition provides L&T Mutual Fund the necessary scale, products and access to retail customers to grow profitably.”

In July 2010, L&T Financial Services gained access to the mutual fund industry in India after acquiring DBS Chola. In last two years, its total average AUM has grown on a compounded annual basis of around 33 per cent to Rs 4,616 crore with a debt–focused portfolio.

“We see tremendous complementary strengths between both the mutual funds. The strong equity-focus of Fidelity’s Indian Mutual Fund, when combined with L&T Mutual Fund, results in a balanced asset base. The size of the combined entity will provide an optimal platform to improve margins and grow profitably. Together, the complementary skill sets, distribution reach and client base present a well balanced overall picture,” N. Sivaraman, president & whole-time director, L&T Finance Holdings Limited said in the release.

According to the release, both the fund houses share common investment philosophies which include “Bottom-up” stock picking which is largely research driven. This provides an optimal platform for the smooth and efficient integration of the two businesses.

K Balakrishnan, chairman of Lazard India said, “With so many players in the market, consolidation will take place but a generalisation cannot be made on the trend of M&As in the sector.” According to him, the L&T-Fidelity transaction is perfect given the complimentary abilities that both bring to the table. Lazard India was the financial advisor to L&T Finance in the transaction.

The Rs 7.13 trillion Indian mutual fund industry comprising 44 players has been struggling to wade through tough regulatory waters in last few years with the exit load being banned. Slower growth in asset base and increasingly difficult customer acquisition has led to a lot of funds relooking at their India business. While experts believe a lot of foreign and domestic promoters are looking at exiting, there are many who want to enter in the vast India market.

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