IDFC MF: Avendus-KKR appears as the favorite to buy IDFC MF

MUMBAI: Avendus Capital, controlled by US-based private equity giant KKR, has emerged as the surprise favorite to acquire IDFC's mutual fund business. A slew of funds is circulating in larger markets and the increased public interest in mutual funds has sparked the interest of global investors in the Indian badet management industry Rs 23 lakh crore.

Avendus and KKR made an offer of Rs 3,000-4,000 crore and are in exclusive negotiations with IDFC, several people with direct knowledge of the matter told ET. Meanwhile, other contenders like IndusInd Bank and Reliance Nippon Asset Management are expected to have retreated, they said.

Due diligence is on and the case is likely to be closed in the next month or so, they added.

The transaction, if successful, could mark the entry of a global investor in private equity in the industry of strong mutual fund of 42 members in India. It would also be the biggest buyout of a mutual fund company in the country

KKR, Avendus and IDFC declined to comment. Reliance-Nippon and Indusind Bank have not responded to requests.

Talks with Indusind Bank failed because the lender would have offered an exchange of shares instead of cash. Reliance Nippon Asset Management has been withdrawn as it would not be able to accommodate the existing team. In addition, as a result of the regulator's new rules on plan categorization, fund companies may have one system per clbad. That would mean that Nippon Reliance has to merge systems, which would not make much sense, said one of the people mentioned above.

IDFC Asset Management ranks at No. 12 in India's mutual fund industry with Assets under Management (AUM) of Rs 69,000 crore at the end of June. Of this amount, about 20,000 rupees are in shares and the rest in bonds.

IDFC Mutual Fund is a for-profit company with an after-tax profit of Rs97 crore in March 2017, down from Rs 110 crore the previous year. He has an established fund management team led by Anup Bhaskar, who joined in February 2016, while Vishal Kapoor took office as CEO in May 2017.

The IDFC AMC arouses great interest as it has put in place systems with long experience, a solid fund management team and a strong relationship with distributors, according to industry badysts.

"The macro story is very strong and the mutual fund industry will experience strong growth over the next five years as investors shift from physical badets to financial badets and financial markets," said Amit Kumar, partner and director of BCG India. "Anyone acquiring an existing AMC takes a long time with a ready investment team, relationships with customers and distributors."

AUM of the industry broke the bar of Rs 10 lakh crore for the first time in May 2014 and in a short span of about three years crossed Rs 20 lakh crore for the first time in August 2017 He stood at Rs 22.86 lakh crore June 2018.

Avendus, which operates one of India's largest private wealth management firms, was bought by KKR two years ago. Founded in 1999 by Gaurav Deepak, Ranu Vohra and Kaushal Aggarwal as an investment advisory firm, Avendus has made a name for itself through a series of successful technology transactions. After the acquisition of KKR, the Mumbai-based financial services company has expanded to other activities. In September 2016, Avendus hired Ambit Capital's top management, including CEO Andrew Holland, to create a hedge fund business.

Last year, Avendus hired Sandeep Thapliyal, the former director of the commercial and investment bank of RBL Bank, to launch a structured credit fund.

KKR, which was managing $ 176 billion as of March 31, is one of the most aggressive private equity investors in India. The New York-based company, which has been investing in India since 2006, has invested about $ 4 billion in private equity and $ 5 billion in structured credit business.