HSBC MF to Buy out Larsen & Toubro Mutual Fund

In a continuation of the recent trend of consolidation in the Indian mutual fund segment, L&T Mutual Fund will be sold to HSBC Mutual Fund for a consideration of $425 million or approximately Rs.3,200 crore. 

In the last few years, several global fund houses sold out to domestic names. This is one of the few cases when a domestic mutual fund name has been sold out to a global fund house at a pricing of around 4.1% of the overall AUM.
HSBC MF will buy 100% stake in L&T Investment Management from its sponsor, L&T Finance Holdings Ltd. L&T Investment Management is the asset management company for L&T Mutual Fund. 

It may be recollected that a little over a decade ago, Fidelity Mutual Funds India had sold out its funds to L&T Mutual Fund when it had decided to exit the India mutual funds business. L&T had grown aggressive through inorganic means.
In a way it is a reverse deal of sorts. L&T Mutual Funds has total assets under management (AUM) of Rs.78,274 crore while the AUM of HSBC AMC is just about Rs.11,314 crore. This move will come as a major boost to HSBC AMC.
Post the deal, HSBC AMC will be able to substantially boost its AUM in one go and position the combine among the top 10-12 funds in India in terms of overall AUM. Also the price paid at 4.1% of AUM is fairly reasonable.

The Larsen & Toubro group has been gradually exiting most of its non-core businesses. Its focus now is purely in 2 areas viz. EPC and IT Services. While the EPC has a strong order book, the IT franchise has been a great value driver in the last few years.

L&T has derived a lot of value from its group companies like L&T Infotech, LTTS and Mindtree. In this new scheme of things asset management did not fit in. It may be recollected that in 2020 L&T had sold its wealth management business to IIFL Group.

This will mark the third acquisition in the mutual fund segment this year. Earlier this year, Groww had acquired the asset management business of Indiabulls Mutual Fund while Sundaram AMC had acquired the mutual funds business of IDBI AMC. It looks like the consolidation of the mutual funds business is really picking up steam now.
The Indian mutual fund industry had traditionally been a tough market for global names which struggled to compete with the bancassurance plays. Many large global names like Fidelity, JP Morgan, Morgan Stanley, Deutsche AMC, Zurich had all exited India in the past. 

For a long time, Templeton was the sold global fund holding on in India. Now, with Templeton under a lot of strain after the debt funds fiasco of 2020, HSBC sees a huge space for it to make a foothold in the Indian asset management business. 

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