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Mergers & Acquisitions | 31 May 2010

Mukesh Ambani May Buy Majority Stake in JM Financial MF

by Deeshesh Chheda
Mukesh Ambani May Buy Majority Stake in JM Financial MF
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As per rumours, Mukesh Ambani maybuy majority stake in JM Financial Asset Management Pvt. Ltd.

The deal valuesJM Financial Asset Management at around Rs.685 Cr (8% of JM’s AUM of Rs.8,569 Cr).

This acquisition will give Mukesh Ambani a direct entry in India’s Rs.7.7 trillion mutual fund industry.

Started in 1994, JM Financial MF, a part of the Nimesh Kampani-controlled JM Financial group, is one of the country’s first asset managers. It manages total of 27 investment plans.

JM Financial MF is a loss-making entity in the profitable JM Financial group. Last year, it had a loss of Rs.5 Cr.

Market plunge in 2008 led to fall in AUM of JM Financial to Rs.3,758 Cr in March 2009, of which Rs.1,480 Cr was in equity, before increasing last year when the market recovered.

JM Financial has been looking for the buyer for last couple of months. According to rumours, JM Financial had earlier talked with Indiabulls group for its asset management business, but didn’t materialize.

The non-compete agreement between the Mukesh Ambani company and Reliance Anil Dhirubhai Ambani Group (R-ADAG) subsequently which was torn up in a move towards possible reconciliation between the two, prevented Mukesh and Anil from entering each other’s businesses thus restraining Mukesh from venturing in financial services sector.

R-ADAG through Reliance Capital is into asset management, life and general insurance, consumer finance and other capital market-related businesses. Reliance Capital Asset Management is the largest mutual fund in the country with assets worth Rs.1.11 trillion.

Three year before, Nimesh Kampani sold his 49% stake in the joint venture investment banking company JM Morgan Stanley Securities Pvt. Ltd to Morgan Stanley for $445 million (Rs2,069.25 crore as of today).

This year in March, Vishal Kampani, son of Nilesh Kapani resigned from the post of director in MF business.

MF business valuations depend on the asset manager’s product portfolio. The higher the equity assets, higher would be the valuation, because companies earn more commission income from the sales and management of equity funds compared with debt funds.

Traditionally, such deals have been struck at 3-4% of the assets under management.

In January 2010, US based asset management firm T. Rowe Price Global Investment Services Ltd bought a 26% stake in UTI Asset Management Co. Pvt. Ltd for $140 mn, around 3.25% of its average AUM.

In July 2009, Nomura Asset Management Co. Ltd bought a 35% stake in LIC Mutual Fund Asset Management Co. Ltd at 2.4% of its total assets.

In September 2009, the financial services unit of engineering firm Larsen and Toubro Ltd announced plans to buy DBS Cholamandalam Asset Management Ltd for Rs.45 Cr, at about 1.6% of its AUM.

Transaction Reference: Mint


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