Franklin Templeton may kick off 2015 M&A activity

Indian Mutual Fund industry may continue to see a phase of consolidation even in 2015. If market reports are to be believed, Franklin Templeton Asset Management Company (AMC) may acquire Deutsche AMC. In 2014, the mutual funds saw three merger and acquisitions deals.

Spokesperson of both the fund houses said, “We would not like to comment of market speculation.”

However, officials who are privy to the deal said that talks are on and we may get the final outcome in the next few days. Sources stated that deal might be valued at 2-3% of average assets under management (AAUM) of Deutsche AMC.

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According to Association of Mutual funds in India (Amfi), AAUM of Deutsche AMC for the quarter ended December 2014 stood at over Rs 22,670 crore. While AAUM of Franklin Templeton was at around Rs 63,640 crore. Currently, Deutsche AMC has approximately 40 schemes, with many of them on the debt side.

“If deal is valued at 2-3%, it will be a fair deal for Deutsche AMC as they have very low equity exposure. For Franklin Templeton AMC, this deal might take them ahead of SBI Mutual Fund at sixth position. I think we may see some more deals in the coming months as small fund houses are finding it difficult to survive in this highly competitive business,” said a top fund house official.

Recently, Nippon Life Insurance Company had bought a 9% stake in Reliance AMC for Rs 657 crore. With this deal, Nippon Life Insurance’s stake in Reliance AMC touched 35% (they had acquired a 26% stake in 2012). While, Kotak Mahindra AMC and Birla Sun Life AMC had bought PineBridge Investments and ING Mutual fund, respectively, in 2014.

“In Indian MF space, profits are only made by top few players. Even flows are high in the schemes by top players, this leaves many mid- and small-size mutual funds to think about running the business,” said CEO of another fund house.

In the last few years, many small fund houses like Morgan Stanley AMC, Daiwa AMC and Benchmark AMC made an exit from the MF business. Currently, there are 42 fund houses in country and analysts believe if the trend continues, we may see the number of overall fund houses shrinking to less than 35 in next few months.