Reference no: EM133110149

Question - With Magma takeover - Poonawalla Group sets sights on the financial services sector

Cyrus Poonawalla Group, which is into the manufacture of vaccines, now seems to be focussing on the financial services sector with plans to take a controlling stake in Magma Fincorp. While the group has already started Poonawalla Finance in 2019, the proposed takeover of Magma Fincorp will help it reach scale, expand its presence across the country, and also have a larger product offering. According to a late evening statement on February 10, Adar Poonawalla-controlled Rising Sun Holdings is to take a 60 per cent stake in Magma Fincorp for 23,456 crore. The plan is to consolidate the existing Poonawalla Finance with Magma and then rename the entity as Poonawalla Finance. Sanjay Chamria, Vice-President and Managing Director, Magma Fincorp, said the Poonawalla Group has worked out a number of plans for the consolidated entity. Headquartered in Pune, Poonawalla Finance offers business loans personal loans and loan to professionals such as Chartered Accountants, doctors and company secretaries. According to a CARE Ratings release on January 6, Poonawalla Finance primarily focusses on the low ticket size retail segment and has total assets under management of 21,063 crore as on September 30, 2020. "Of this, around 2490 crore is in the form of loan book and 2573 crore is in the form of PTC investments. Loan book of 2490 crore consist of professional loan (41 per cent), business loan (39 per cent), whereas the remaining 20 per cent is contributed by personal loans," it had said, adding that the entire loan book is automated.

"PFPL benefits from financial support from promoters and group and has healthy capitalisation for initial stage of operations with net worth of 2881 crore as on March 31, 2020," CARE Ratings had further said Maharashtra contributed 41 per cent of its loan book. The transaction is also expected to help Magma Fincorp, according to analysts. "Post the ILFS crisis, Magma Fincorp had been struggling to raise money from capital markets and their dependence on bank borrowings had been consistently increasing. Moreover, the volatile trends in asset quality (especially in vehicle finance) had kept the profitability under consistent pressure," said Emkay Global Financial Services in a report, adding that this transaction would strengthen Magma's overall capital position and allow the company to realign its business as desired.

Following the announcement, Magma's scrip touched a 52-week high of 293.4 on the BSE on Thursday.

Based on the above news item, answer the following questions:

Required -

Q1. What are the different possible motivations for a company to acquire another company?

Q2. Explain in brief the different ways in which an acquirer can "pay" for acquiring the target company

Q3. What could be the role of an Investment Banker in a large M&A deal such as the one referred to above?