Mumbai: Private equity (PE) firm KKR and Co. has agreed to buy a controlling stake in Mumbai-based Alliance Tire Group (ATG) from Warburg Pincus Llc. for an undisclosed sum.
The terms of the transaction were not disclosed. Mint reported in March that KKR was in final talks to buy as much as 80% of the tyre maker in a deal that would value it at about $600 million (around Rs.3,264 crore today).
Based on that, this will be the second largest PE transaction in the country after Bain Capital’s purchase of a 30% stake in Genpact Ltd for $1 billion last year. This is also KKR’s second buyout in India after it acquired a majority stake in Aricent Inc. in 2006 for $900 million, the largest leveraged buyout in the country.
ATG, which specializes in producing off-highway tyres, will use KKR’s investment “to continue to expand into new markets, make strategic acquisitions, and help scale our global presence,” said Yogesh Mahansaria, founder of ATG, who will continue to maintain an ownership stake in the company.
The transaction is subject to customary closing conditions, including receipt of regulatory and third-party consents.
The investment in ATG is being made through KKR’s investment funds, but it will be supported by a financing tranche led by Crescent Mezzanine with additional participation by Ivy High Income Fund.
US-based Crescent Mezzanine provides capital to buyout firms for leveraged acquisitions. Ivy High Income Fund invests in high-yield, high-risk, fixed-income securities of US and foreign issuers.
“Through the KKR Capital Markets team, we put in a very creative financing structure in this transaction,” Heramb R. Hajarnavis, director, private equity, KKR, said over the phone. “We have brought in financiers which allows creation of a bespoke structure appropriate for the company’s growth plans that will give it operational flexibility and increase value consideration for the shareholders.”
Hajarnavis added: “Our vision is to help ATG enter new markets and grow in the existing markets of US and Europe,” he said.
ATG manufactures and supplies a range of off-highway tyres under the brand names Alliance, Galaxy and Primex primarily to the agricultural, forestry and construction industries in more than 120 countries. It has manufacturing facilities in Israel and India, and research and development centres in Israel, India, the US and South Africa.
Its sales improved to about $500 million in 2012 from about $125 million six years ago.
“ATG is a leader in an attractive industry with strong underlying growth drivers, and we look forward to leveraging our global network to support their continued growth,” Sanjay Nayar, head of KKR India, said in a statement.
Credit Suisse was the financial adviser to ATG, and Nine Rivers Capital advised the founders. Barclays Bank Plc and JPMorgan advised KKR for this transaction.
Global PE firms are flush with capital and are looking for big-ticket buyout deals in India, experts said. The market is slowly and steadily evolving as family succession, exits by incumbent investors and better control over investor exits are starting to drive buyout activity, they said.
Currently, PE buyouts account for fewer than 10% of the value of deals struck in India. Last year, there were 11 buyout deals worth $526.21 million involving Indian companies, compared with 299 PE deals worth about $8 billion, according to VCCEdge, which tracks investment activity in the country.
In 2011, there were 18 buyout deals worth about $1 billion, compared with 367 PE deals worth about $11.7 billion.
Avnish Mehra, director, Advent India PE Advisors Pvt. Ltd, said secondary sales, or stake sales in portfolio companies by one PE firm to another, will increase in India.
“The sheer number of deals done by PE firms in the last 10 years is massive. There are sectors like healthcare and IT (information technology) that are massively funded by PE firms. Also, deals that were done in 2006-07-08 are maturing now,” Mehra said, explaining why secondary sales will increase.
Besides, the initial public offering (IPO) market is tepid and the nature of capital markets has changed, he said. “Institutional investors, who have been the backbone for IPOs, are now preferring large firms with liquid stocks and well-researched equity stories. It’s difficult for small and mid-cap IPOs to attract them,” he said.