LeapFrog Investments, the global impact fund manager, has announced the anticipated acquisition of its investee company India’s Fincare Bank by local peer AU Small Finance Bank.
Under the terms of the anticipated merger, listed Indian finance company AU Small Finance Bank will emerge as the new operator of Fincare Bank through a share swap, creating a profitable combined entity delivering an H1 profit after tax of $120 million with a customer base of over 9 million.
The merger is expected to create India’s largest inclusive bank with a market capitalisation of $6.3 billion.
Shares of AU Small Finance Bank dropped nearly 9% to their lowest since mid-April in Monday trading, Reuters reported.
LeapFrog invested in Fincare in 2017, which has since grown to serve over 5.4 million customers, most of whom are women and emerging consumers.
The anticipated merger would value LeapFrog’s initial investment in Fincare at around 3x money on invested capital (MOIC), according to a company release.
Through LeapFrog’s partnership, Fincare has evolved from a group of two microfinance institutions into a high-growth, technology-enabled inclusive bank with broad product offerings encompassing savings, deposits, insurance, and secured lending products such as affordable housing finance.
Fincare has fully digitised its operations, resulting in reduced operational expenditure ratios, increased profitability, and the implementation of a new core banking system. This transformation has enabled its expansion into new client segments, including the launch of a pioneering digital bank account that allows the onboarding of new customers in less than 5 minutes.
LeapFrog helped Fincare weather the COVID-19 pandemic, leading a structured transaction that was instrumental in catalysing other investors to support the company.
The transaction paved the way for its recovery and positioned the bank to achieve a 40%+ growth rate and a 28% return on equity during 2023, which in turn helped catalyse the anticipated merger with AU Small Finance Bank, the release added.
“LeapFrog is proud to have contributed to building Fincare into a South Asian impact champion, helping it expand the range of products it offers to millions of low-income consumers as well as supporting major digitisation upgrades that lowered costs and improved convenience and quality, especially for women and rural customers. Fincare’s anticipated merger with AU Bank will go one step further and create the leading inclusive bank in India, a landmark achievement,” said Fernanda Lima, Partner and Co-head Asia Financial services at LeapFrog Investments.
LeapFrog recently announced that it will hold the final close of its fourth flagship growth equity fund in February-end next year. The fund, called the Emerging Consumer Fund IV, is targeting to raise $1 billion and has already secured a “significant share” from investors such as Hong Kong insurer AIA and Singapore’s Temasek. This would be the investment firm’s largest corpus raised to date.
The fund is also backed by the World Bank’s International Finance Corporation (IFC) and European Investment Bank (EIB), which have committed $50 million and $60 million, respectively, to the vehicle. US insurance company Prudential Financial is also a limited partner (LP) in the fund.
The growth equity fund invests in financial services and healthcare businesses in global growth markets. It has made three investments so far, including leading a $61-million funding round in India’s diagnostics platform Redcliffe Labs, a $70-million add-on to Kenya-based off-grid solar energy company Sun King’s Series D round, and a $50-million injection in Singapore insurtech unicorn Bolttech.