CreditAccess Grameen Ltd (CAGL), which operates a microlending business under the Grameen Koota brand, has signed definitive agreements for the acquisition of a controlling majority stake in Madura Micro Finance Ltd (MMFL).
As part of the two-step transaction, CAGL will acquire 100% stake in MMFL.
In the first leg, CAGL will acquire up to 76.2% stake in MMFL from its existing shareholders for cash and, in the second stage, MMFL shall be merged into CAGL through a scheme of arrangement.
In the arrangement, the residual shareholders of MMFL will receive shares of CAGL at a share-swap ratio.
The deal is subject to regulatory approvals.
The business acquired from MMFL will continue to operate as a separate division until the integration is complete.
Paolo Brichetti, chairman, CAGL, said, “The acquisition underpins our mission to be the preferred business partner of low-income households lacking access to credit.”
MMFL has been running a sale process for over a year and has seen bids from several private equity players as well as strategic investors.
All employees of MMFL will become workers of CAGL upon merger. MMFL’s promoter, Dr Tara Thiagarajan, will act as an adviser to the board of directors of CAGL after the merger.
Thiagarajan, chairman and managing director of MMFL, said, “The acquisition represents an immense opportunity to build an even stronger operating platform and leverage innovations in technology, data and analytics for the benefit of low-income rural households.''
CAGL, which reported a gross loan portfolio (GLP) of Rs 7,904.8 crore for the second quarter of the current financial year, provides services such as group lending products, retail finance and distributor products.
The target company MMFL has a GLP of Rs 2,053 crore.
MMFL had 11.1 lakh borrowers and 430 branches as on September 30, 2019.
The transaction provides CAGL access to a large client base with limited overlap of only about 0.5 lakh common customers with MMFL as of July 2019.
The acquisition also helps CAGL in furthering its geographical diversification of portfolio, with the share of book in Karnataka reducing from 51% to 41% of GLP.
After the acquisition, the combined entity would have a portfolio of Rs 9,958 crore, with about 37 lakh borrowers and 1,300 plus branches across 13 states and one Union Territory in India.
This acquisition adds over one year of organic growth, improves ROE profile and accelerates deployment of leverage at CAGL, said the statement.
Udaya Kumar Hebbar, managing director and CEO of CAGL, said, “The acquisition will provide us with significant benefits in the form of better competitive positioning, larger business scale, deeper presence, portfolio diversification, optimum leverage and better profitability while maintaining our quality of operations.''
Early this month, CAGL raised Rs 214 crore ($30.27 million) in debt funding from Dutch development bank FMO.
As of March 2019, MMFL's shareholders included Thiagarajan (32.39%), AV Thomas and Co. (16.11%), Midland Rubber & Produce Company (16.12%), Elevar Equity (12.04%), M Narayanan (5.19%) and Employees' welfare trust (5.07%).
MMFL was started by erstwhile promoters of Bank of Madura.