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Nippon Life Insurance announced yesterday that it would buy a 26% stake in Reliance Capital Asset Management, India’s second largest and most profitable asset management company for Rs14,500 ($286 million).
This transaction, which is subject to regulatory approval, is the biggest M&A deal as well as the largest foreign direct investment into India’s asset management industry. It values Reliance Capital Asset Management, the asset management subsidiary of Reliance Capital, at $1.1 billion.
“We are delighted to have Nippon as our strategic partners in the mutual fund business. They are already our partners in the life insurance business. The mutual fund partnership cements and strengthens the relationship between Reliance Group and Nippon Life further and takes it to a new level,” Anil Ambani, chairman of Reliance Capital, said in a statement.
This is the third outbound M&A transaction from Japan this week, underscoring how Japanese companies are taking advantage of the strong yen to cherry-pick stakes in overseas companies, in a bid to ensure future growth. On Monday, Sumitomo Mitsui Financial Group agreed to pay £4.7 billion ($7.3 billion) for Royal Bank of Scotland’s aircraft leasing business, RBS Aviation Capital, and, on Wednesday, the same group announced it would invest $93 million in independent investment bank Moelis & Company -- a transaction that builds on an already existing relationship, which highlights a sensible approach to growth: invest in what you know.
Last March, Nippon Life bought a 26% stake in Reliance Life Insurance at an aggregate value of $680 million, in a transaction that pegged the total valuation of the life insurer at approximately $2.6 billion.
Nippon Life, also known as Nissay, is already well established — a 122-year-old Global Fortune 100 company that manages more than $600 billion in assets and is ranked as the seventh-biggest life insurer in the world, and the top private life insurer in Asia and Japan.
Strategic rationale
Last year, when it invested in Reliance Life, the strategic rationale was clear — the Indian market provided Nippon Life, which already had more than 14 million policies in Japan, with an opportunity to participate in a high-growth market with a demographic completely different from the one it has to face in its home market. In India, it has access to a young clientele that is climbing the socio-economic ladder.
Once again, the rationale is clear. The industry is set to benefit from new rules announced on January 1 that will allow overseas individual investors to buy local equities directly. Opening the market to foreign investors could broaden the asset management business — so this pair-up gives Nippon Life access to that opportunity. Reliance Capital Asset Management is the second-biggest asset-management company in India in terms of assets under management, with a market share of 13% and manages $19 billion across mutual funds, managed accounts and hedge funds.
Furthermore, this isn’t a huge leap of faith outside Nippon Life’s comfort zone given that it already has a presence in asset management in Japan and is building on an existing relationship.
Some of the other major Indian asset managers have already paired with foreign investors, such as the joint ventures between ICICI Bank and Prudential, and HDFC and Standard Life Investments. Reliance Capital Asset Management is a leading franchise, it’s profitable and reputable, and it was available to marry. No wonder Nippon Life proposed.
In a nod to their advisory capabilities, the same banks that worked on the Nippon-Reliance transaction last year were back at the table this year. Morgan Stanley acted as the financial adviser to Nippon Life on this transaction. Deutsche Bank represented Reliance Capital Asset Management.
