HSBC Acquisition of L&T Investment Management Limited (LTIM)
Deal Overview
- Announcement date: 23/12/2021
• Industry: Financial Services
• Deal value: US$425 million
• Deal consideration: Equity shares in full
• Acquirer’s advisors: N/A
• Target’s advisors: JP Morgan & Citi
Company Details: HSBC
Founded: 1865
• HQ: London, United Kingdom
• Market Cap: $143.82 bn
• EV: -$174.94 bn
• LTM EBITDA: $ 7180mn
• EV/LTM EBITDA: -0.024x
HSBC Holdings plc is a British multinational investment bank and financial services holding company. It is the second largest bank in Europe behind BNP Paribas, with total equity of US$204.995 billion and assets of US$2.984 trillion as of December 2020. HSBC traces its origin to a Hong in British Hong Kong, and its present form was established in London by the Hong Kong and Shanghai Banking Corporation to act as a new group holding company in 1991.
HSBC is the world’s 40th-largest public company, according to Forbes magazine. HSBC has a dual primary listing on the Hong Kong Stock Exchange and London Stock Exchange and is a constituent of the Hang Seng Index and the FTSE 100 Index. It has secondary listings on the New York Stock Exchange, and the Bermuda Stock Exchange.
Company Details: L&T Investment Management Limited (LTIM)
• Founded: 2010
• HQ: Mumbai, India
• Market Cap: $196.52 mn
• EV: N/A
• LTM EBITDA: $ 25.54mn
• EV/LTM EBITDA: N/A
L&T Mutual Fund is a mutual fund company in India. It caters to the investment needs of investors through various mutual fund schemes. The Asset Management Company (AMC) for all L&T Mutual Fund schemes is L&T Investment Management Limited. The sponsor for the AMC is L&T Finance Holdings Limited (LTFH) which is a listed company and registered with RBI as an NBFC. The Company offers asset management, equities, fixed income, mutual funds, investment strategies, financial planning, and advisory services. With assets under management (AUM) of INR803bn (US$10.8bn) and over 2.4m active folios as of September 2021, LTIM is currently ranked as the 12th largest mutual fund management company in India. LTIM reported a pre-tax profit of INR1.85bn (US$25.0m), income of INR3.48bn (US$46.9m) and costs of INR1.63bn (US$21.9m) for the financial year ended March 2021.
Strategic Rationale
Following the completion of the acquisition, and subject to regulatory approvals, HSBC intends to merge the operations of LTIM with that of its existing asset management business in India, which had AUM of INR117bn (US$1.6bn) as of September 2021. The proposed acquisition, subject to regulatory approval, will be another milestone as HSBC delivers on its strategy of becoming a leading wealth manager in Asia. Strengthening HSBC’s asset management business in India will add to its ability to serve the wealth needs of its customers in India as well as those of its growing non-resident Indian customer base across the world. Surendra Rosha, HSBC’s Co-Chief Executive Asia Pacific, added: “LTIM’s customer base and wide footprint in India will provide HSBC with much deeper access to a high-growth wealth management market. India’s rising income levels and higher life expectancy are driving an expanding and yet under-penetrated sector.” HSBC expects the acquisition to be immediately accretive to the earnings of the Group upon completion and to achieve a return on investment of greater than 10% in the medium term.
Prior Investment Pattern
In February 2020, HSBC combined its retail banking and wealth management, asset management, insurance and private banking businesses to create Wealth and Personal Banking which serves over 39 million customers globally. HSBC’s ambition is to be Asia’s leading wealth manager by 2025, opening up a world of opportunities for Asian, international and HSBC-connected clients, wherever their wealth is created, invested and managed. Asia generates around half of HSBC’s US$1.6trn global wealth balances and nearly 65% of the Group’s wealth revenues.
What’s in for LTIM Investors
L&T Mutual Fund has 27 actively managed funds — 10 in equity, 13 in debt and four in hybrid category — with L&T Triple Ace Bond (corporate), L&T India Value and, L&T Emerging Businesses Fund (small cap) being the top schemes in terms of assets being managed. Both the AMCs currently have about 17 schemes in common but post Sebi’s scheme categorization rules, mutual funds can have only one open-ended scheme in each category. Thus, once L&T MF is acquired by HSBC, the overlapping schemes of L&T will be merged with similar schemes in HSBC or vice versa, for which we do not have substantial information at this point of time. The investors of the scheme that is getting merged will be issued units of the scheme with which the former is merged.
Inherent Risks
It remains to be seen if the growth in asset size, wider distribution network, and larger investor base post acquisition of L&T Mutual Fund culminates into improved performance of HSBC Mutual Fund schemes. If you are an investor in any of these schemes you need to keep a close watch on its performance post the acquisition. Consider exiting the schemes if they show extended bouts of underperformance compared to the benchmark and the category peers. Moreover, some schemes of L&T Mutual Fund are likely to be merged with the schemes of HSBC AMC and may undergo changes in fundamental attributes. If the merged scheme follows a more aggressive/conservative investment approach than the current scheme and is no longer in congruence with your risk profile, or if the investment objective of the merged scheme does not align with your own investment objective, you can consider exiting the scheme during the free exit load period.
When will the deal go through?
The acquisition formalities are intended to be executed by the first half of 2022 as per the sayings of HSBC Holdings management. Though it is yet to be seen whether the deal goes through as projected or will there be certain modifications in the approach, covenants or duration.
