Mumbai: Aditya Birla Private Equity, a part of the Aditya Birla Financial Services Group, is looking to exit its four-year-old investment in restaurant chain Olive Bar & Kitchen and has hired an investment bank to initiate the process, said two people aware of the development.
“The PE fund has recently hired the investment banking arm of EY (formerly Ernst & Young) to find buyers for its stake in Olive. The share sale process will be launched soon,” said one of the two people cited above, requesting anonymity as the talks are private.
Aditya Birla PE holds around 33% stake in the firm and is looking at a complete exit, he added.
The PE firm had invested around $10 million in Olive in 2012 from Aditya Birla Private Equity-Sunrise Fund, a Rs300 crore fund focused on providing growth capital to proven businesses in early-stage, high-growth sectors.
The transaction might also see the restaurant raise primary capital to invest in growth, said the second of the people cited above, also requesting anonymity. “They (Olive) are also looking at raising some primary capital for the business, but the details are yet to be finalized. Depending on the quantum of primary capital that they raise, the size of the transaction could vary between Rs200 and Rs250 crore,” he said.
Olive Bar and Kitchen Pvt. Ltd, which launched the first Olive Bar & Kitchen in Mumbai in 2000, owns 10 brands, ranging from fine dining restaurants to pubs, including Olive Bistro, SodaBottleOpenerWala, The Local, The Moving Kitchen, The Fatty Bao and Monkey Bar.
The company has restaurants across Mumbai, Delhi and the national capital region, Bengaluru and Hyderabad, among others.
Filings with the Registrar of Companies show the firm reported a consolidated revenue of Rs108.8 crore in 2014-15, compared with Rs76.8 crore in the previous year. Profit in 2014-15 rose to Rs4.65 crore from Rs1.5 crore a year earlier.
“The investment term of our current PE investors is coming to an end and we have commenced a process to provide them an exit as well as support the expansion plans of the company. The transaction size, of course, will depend on the markets and we really can’t comment on that,” said A.D. Singh, founder and managing director of Olive Bar and Kitchen Pvt. Ltd.
Emails sent on Monday to Aditya Birla Financial Services and EY did not elicit any response.
In June 2015, Mint reported that Aditya Birla PE, part of the $40 billion Aditya Birla Group, intended to raise a $500 million fund from domestic and global investors and had initiated discussions with some US investors.
The company currently manages more than Rs1,180 crore through two funds—the Rs880 crore Aditya Birla Private Equity-Fund I and the Rs300 crore Aditya Birla Private Equity-Sunrise Fund.
The attempt to exit its investment in Olive Bar & Kitchen comes at a time when the fund-raising environment in the restaurant industry is far from benign.
In 2015, the industry witnessed PE investments worth $284 million (across 18 deals), but so far in 2016, investments worth only $17 million have been recorded, according to data from deal tracker Venture Intelligence.
In July, Mint reported that Impresario Entertainment and Hospitality Pvt. Ltd, which runs the popular Smoke House Deli restaurants and The Social chain of bars and cafes, opted for a Rs50 crore bank loan to fund its expansion, after having spent over a year looking to raise Rs120 crore in equity capital.
Likewise, The Beer Café, a chain of beer bars in the national capital region and Maharashtra run by BTB Marketing Pvt. Ltd, which had looking to raise Rs35-40 crore since 2014, opted for debt in March, Mint reported.
Increased competition, a growing conservatism among investors and the lack of exit options are factors responsible for this.
While almost $700 million has been invested in the space in the past five years, on the exit side, there have been just four transactions worth $150 million, data from Venture Intelligence shows.
New Silk Route Partners, which acquired a majority stake in Moshe’s Fine Foods Pvt. Ltd in 2013, has been looking for a strategic buyer for the food and beverages portfolio firm for over eight months and is finding it tough, Mint had reported in May.
“Scaling up remains a challenge for restaurant brands given the high rentals in the metro cities. Also, competition in the space is very high with new restaurants and new formats coming up frequently. Hence brands find it very difficult to build a loyal customer base that can provide repeat business,” said Dhanraj Bhagat, a partner at Grant Thornton India Llp.