Mumbai: Aditya Birla Private Equity, a part of the Aditya Birla Financial Services Group, has invested an undisclosed sum for a minority stake in fine dining restaurant operator Olive Bar and Kitchen Pvt. Ltd, which owns the Olive, Monkey Bar, LAP, Ai and Soul Fry brands.
While Bharat Banka, chief executive, Aditya Birla Capital Advisors, declined to give details of the deal, another person close to the transaction said the private equity (PE) firm has committed $15 million to Olive Bar and Kitchen, to be paid in tranches.
This is the second investment from Aditya Birla Private Equity–Sunrise Fund, a Rs.300 crore fund that focuses on providing growth capital to proven businesses in early-stage but high-growth sectors.
“It’s not easy to fund interesting companies in this space. We are looking for brands that are profitable, have been institutionalized and are scalable,” said Banka, adding they invested in Olive Bar after evaluating 20 dining chains.
Banka said many companies in the restaurant space have been created by people who are passionate about food. These, however, may not find many financial backers, he cautioned.
“We look for people who are building a brand, who run the business with discipline and understand the concept of issues like real estate, staffing and décor,” he said.
Besides its flagship Olive brand, the company recently launched two new formats—gastro pubs and bistros. Banka is hopeful that with time, revenue contribution of these formats will increase while Olive will continue to be the anchor brand, just as Mainland China is for Speciality Restaurants Pvt. Ltd.
“We intend to leverage our brand equity created over the years to expand the reach of existing formats and launch new formats, which are independently scalable models,” said A.D. Singh, managing director, Olive Bar and Kitchen.
The transaction comes at a time when at least half a dozen restaurant chains are looking at raising funds from PE investors who are seeking to leverage the rise of the Indian consumer and see restaurant chains as a very viable route of investment.
Furthermore, the recent success of Speciality Restaurants Ltd’s public offering has provided a glimmer of hope to PE investors who are struggling to exit the companies they have invested in over the past few years. Though Speciality Restaurants’ investors SAIF Partners and Glix Securities Pvt. Ltd are not planning to sell their shares in the restaurant chain, the former could potentially earn an internal rate of return, or IRR, of 18.16% on its investment while Glix could earn 31.17%, going by the issue price of the restaurant chain.
“Some businesses are attaining scale and are, therefore, of interest to PE investors. These businesses are cash cows in the long term. There is a certain predictability about these businesses that gives confidence to investors,” said Pankaj Karna, managing director, Maple Capital Advisors, a New Delhi-based investment bank. He added that going forward, there will be a lot of quick-service restaurants and casual dining chain raising capital.
The food and beverages market in India is pegged at Rs.897,000 crore, according to retail consultancy Technopak Advisors Pvt. Ltd.
Investment bankers say investors feel restaurants are the next big thing in the consumer space in India.
Unlike in the US or the UK, there are not many organized chains here, said Siddharth Bafna, partner and head of the Corporate Finance and Transaction Services Practice at Lodha and Co., which has advised on several transactions in the restaurants space.
According to him, the timing is also right for such businesses here as Indians have more disposable income now and people are experimenting more with food.
“Companies are increasingly doing well, though some of them had difficult times initially. Investors also believe there is a scarcity premium attached to listing companies here as there are only a few listed firms in this space,” Bafna said.