Deutsche AMC India was probably valued at over 1,000 crores

With more than a decade of existence in the Indian mutual fund industry and INR 25,000 crore in assets under management (AUM), the Deutsche AMC India easily found a match in the form of DHFL Pramerica Asset Managers to take over its mutual fund business. Though no formal communication of this deal seems to be available anywhere, various media reports have indicated that an agreement was signed sometime early August 2015 for a purchase consideration of INR 400 crore.

Established in 2003, Deutsche AMC India has a reasonably strong track record and deep relationships with institutional clients and distribution partners. On the other hand, DHFL Pramerica, which initiated its mutual fund innings in India sometime 2008 with the real estate major DLF, has not been able to scale up in the manner it had wished to. At the end of September 2015, DHFL Pramerica had an AUM of just INR 2,366 crore or ~0.2% of the total industry AUM. DHFL (the new JV partner) had swapped places with DLF at Pramerica India’s mutual fund arm last year.

Given its chequered history in India, Pramerica couldn’t let go off this one golden opportunity to bag Deutsche AMC’s India business and muscle its AUM size by 10x. DHFL’s business links with Deutsche seems to have worked in favor of the deal.

Coming to the probable valuations, it would be prudent to compare Deutsche-DHFL Pramerica deal with likes of those where the AUM under consideration was above INR 5,000 crore and the acquisition was for a complete 100% stake. Two deals – Standard Chartered and IDFC; and Fidelity and L&T perfectly fit the bill:

• In 2008, Standard Chartered Mutual Fund was scooped up by IDFC for INR 820 crore, valuing the latter at 5.8% of its total AUM of INR 14,000 crore. Standard Chartered AMC had nearly 80% of its AUM in debt.
•  In 2012, Fidelity sold its Indian mutual fund business to L&T Finance for an estimated INR 550 crore, valuing the latter at 6.2% of its total AUM of INR 8,800 crore. Fidelity AMC had 30% of its AUM in debt.

Considering the above and the fact that a debt heavy portfolio generally fetches a lower valuation, Deutsche AMC India could’ve probably asked for a minimum INR 1,000 crore, approximately 4.5% value of its average AUM of INR 22,800 crore (normalized for four quarters).