Mumbai: Beleaguered retail firm Lilliput Kidswear Ltd claims to have found a potential buyer. The New Delhi-based kids wear firm has received a letter of intent from L Capital, the private equity (PE) arm of Louis Vuitton Moët Hennessy, the world’s biggest luxury goods group, to acquire 85-90% stake in the company, along with another investor, for Rs 1,100 crore, said Sanjeev Narula, managing director and founder of the firm.
“The valuation is sealed now; Rs 1,100 crore is the enterprise value, according to the term sheet. Now, due diligence will happen and, by mid-June we should get the money,” said Narula, adding that he will continue to hold 10-15% stake in Lilliput. “I will continue to be involved in the running of the company.”
Debt woes: Lilliput kidswear founder Sanjeev Narula
A term sheet or letter of intent provided by a PE firm is a pre-acquisition or pre-funding agreement offering a framework of proposed transaction terms as well as an indication of the valuation. Though non-binding, it is a tool for facilitation of the deal as it chalks out prerequisites to closing the deal, such as due diligence, valuation, returns and payment terms. Valuation given in the term sheet for a company typically does not change too much.
Mails sent to Ravi Thakran, managing partner of L Capital Asia and Sanjay Gujral, managing director, India, L Capital Asia, did not elicit any response. Mint could not independently confirm whether the firm had made an offer to Lilliput. A Mumbai-based investment banker confirmed that L Capital has offered a term sheet to Lilliput.
Executives in the PE and banking business said the term sheet is a step forward for Lilliput, but add that any deal will be a complex one that will take time. “It’s one step forward for the company in what could be called as solution to its issues, but due diligence and documentation are still left and things could change in those processes,” said a second another investment banker, who did not want to be identified. The valuation given in the term sheet should not change too much unless there are “surprises” added this person.
The executives said Lilliput is saddled with huge debt taken from several banks, has multiple investors, and that there is still some ambiguity about its balance sheet. It’s a tough deal, not an easy one, said a third investment banker, speaking on condition of anonymity. “There are three issues with it—what are the real numbers, what has been the damage to the brand value after the fiasco and what is the real valuation,” said this person, adding that the closure of the deal will be heavily dependent on Lilliput’s ability to answer these questions.
Meanwhile, the company is also working with New Delhi-based Coralbay Advisors Pvt. Ltd towards a debt recast proposal for banks.
Lilliput, which posted a net profit of Rs 40 crore and revenue of Rs 565 crore in 2010-11, hopes to end the year to 31 March with revenue of Rs 950 crore. The company moved court in early October to prevent private equity firms Bain Capital Llc and TPG Growth from exiting it because of an alleged corporate governance failure.
The two investors had accused Narula of fudging the company’s financial accounts. Narula, in turn, had said the PE firms were trying to halt the firm’s planned Rs 850 crore public offering and get hold of a majority stake.