The Hindu Business Line : MFs may see consolidation: Equirus

BL Research Bureau With 12 years of experience in investment banking, Mr Ajay Garg, the founder of Equirus Capital, is no stranger to the M&A scene. This two-year-old company has already done quite a few major deals starting from Sharekhan, Ortel Communications and the recent DBS Chola AMC. In an interview to Business Line, Mr Garg talks of M&A, strategic sales in the MF industry and other issues.

Excerpts from the interview:

To date, Stanchart, Lotus and now DBS Chola have sold their mutual fund businesses to acquirers. Do you foresee this trend continuing with Indian mutual funds?

Although the industry is in a nascent stage there are consolidation and capitalisation pressures and players are re-evaluating their strategy on that account. Therefore there might be more consolidation in the industry.

Though older players are selling out, some companies have recently acquired licence to start MF businesses. What is your view on this?

Asset Management business is being seen as an attractive proposition overall, and depending on the individual player’s risk appetite people have different approaches to building the business. Some of them prefer doing it on a greenfield basis and others through acquisition

Are mutual fund companies valued purely on the basis of equity assets managed, or is there any other measure?

In the case of AMC business, there are a host of factors that impact valuations. Assets under management (AUM) is one of them, the others being the management team, overall brand, distribution, customer base and other similar factors.

If you look at valuations for strategic sales, price paid for MF assets has come down from the Reliance Capital-Eton deal to the recent ones. Why is it so?

The markets in general have corrected in the last few years, so some of the recent deals might be priced accordingly and compared to the deals few years back maybe they seem cheaper. We believe that the AMC space will be quite active for some time to come from a deals’ perspective.

We have seen lot of M&A happening on the domestic front rather than overseas. What is your take on this?

Companies mostly do M&A for growth. In the current environment a lot of companies are finding that the domestic growth story is still intact against the fact that overseas markets are going through a slowdown and are expected to remain choppy for some time. In that context it is difficult to do a deal in the overseas market

What is the action happening on PE funding?

We have generally seen that PE investors have remained on the sidelines in 2009 year to date. We have seen increased participation of FIIs in the secondary markets, companies being able to do host of QIPs, strong retail participation in MFs and domestic IPOs. But PEs have not been able to do as many deals, which they should have done, given the strong growth prospects that India still offers.

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