Home / Companies / News /  IVFA inches closer to investing in former GCPL MD Mahendran’s new biz

Mumbai: Three private equity (PE) investors are in advanced stages of talks to back the new businesses that are being created by Arumugham Mahendran, former managing director of Godrej Consumer Products Ltd.

India Value Fund Advisors (IVFA) has offered a term sheet to Mahendran, three people, including one directly involved with the transaction, told Mint.

A term sheet or letter of intent provided by a PE firm is a pre-funding agreement offering a framework of proposed transaction terms as well as an indication of the valuation.

“There are more than three PE firms that are in talks with him right now. India Value Fund, among a few others, has offered a term sheet," said an investment banker, who did not wish to be identified.

“The funding from IVFA could be for the pesticide services business," said another person, who spoke on condition of anonymity.

“It is early days for the transaction. Investors are kicked about him," said a third i-banker, who also did not want to be named.

MAPE Advisory Group is an adviser to Mahendran for these transactions.

Two months after he stepped down as the managing director of GCPL, Mahendran is now creating two new ventures—food and beverage (F&B) and pesticide services.

The 58-year-old serial entrepreneur who turned executive after GCPL acquired his company is now back to being an entrepreneur and is planning joint ventures (JVs) with private equity (PE) investors for these businesses. The PE funds will invest about 500 crore into them, he said.

For the F&B business, to be rolled out towards the end of this year, Mahendran is joining hands with a global PE fund. He declined to give the name of the PE fund, citing confidentiality agreements.

“Food and beverage business are inflationary inelastic...people want to eat and drink irrespective of a slowdown or boom. We are organically starting this business," Mahendran said. They have not yet come up with a brand name, he said, adding that the products will be offered through multi-channel distribution networks.

For the pest services businesses, Mahendran is forming a JV with a local PE fund. He declined to divulge the name of the fund. “We may acquire a company for the pest control business. We would not go for small mom and pop operators—there are so many of them. We want a decent-sized business," said Mahendran.

Pesticide services is a familiar territory for Mahendran, who started Transelektra Domestic Products Ltd in 1984, which introduced brands like Good Knight (mosquito repellent) and HIT (insecticide). Transelektra was acquired by Godrej in 1994.

Vishal Nevatia, managing partner of India Value Fund, did not respond to an email from Mint.

The Economic Times in July first reported that Mahendran is close to inking two deals, marking his return to entrepreneurship.

He restarted his entrepreneurial journey by floating a new company Daiki Brands Pvt. Ltd, which makes innerwear, in 2008. “I am a brand builder by occupation, chartered accountant by profession, and an entrepreneur by DNA," he said.

On 15 May, Mint reported Bennett, Coleman and Co. Ltd (BCCL), the publisher of The Times of India and The Economic Times, has bought 49% stake in Daiki Brands through a so-called private treaty. Mahendran’s son Akshay Mahendran is managing Daiki Brands, which has brands like Peri Peri, Biara and Daiki, for both men and women.On the issue of creating JVs with PE funds, Mahendran said it works better when a financial investor is involved. “Congruence with a PE firm is better than a strategic partner. Ultimately, you want to increase value for all shareholders. There is no conflict in such a JV," he said.

In both the JVs, majority will be held by the PE fund in the initial stages. Mahendran said a promoter does not need majority shareholding for protecting his interests. “It can be done through shareholders’ agreements."

PE funds are increasingly looking at backing professionals with proven track record to start new companies. For instance, PE firm Warburg Pincus recently led a $600 million investment in newly formed Africa-focused energy exploration and production company Delonex Energy Ltd.

Warburg Pincus will be the largest shareholder in the London-based Delonex Energy, which is headed by former Cairn India Ltd chief executive Rahul Dhir. Dhir was executive-in-residence at Warburg Pincus, where he worked in close collaboration with the PE firm over the past several months to formulate the Delonex business plan.

A few other global PE firms such as KKR and Co. Lp and Temasek Holdings Pte are also open to the idea of backing a professional who is looking to turn an entrepreneur and has a business plan that could appeal to them.

Experts said PE investors are increasingly betting heavily on what they call as “the right person and the right management team" as businesses are all about proper execution.

Mukul Gulati, managing director, Zephyr Peacock India, said he would personally attribute a lot more importance to the promoter and management teams in India. “In the West, business models are more important; one can get the management teams from outside. In India, the biggest challenge about investing is finding management teams that can execute and have integrity."

“The plan is to find the right, well-experienced professionals in a space that has been attractive for the PE investor for long," said a Mumbai-based consultant, who asked not to be identified as he is working on a similar plan with a PE firm. “Frankly, global PE firm has seen instances here where promoters have taken them for a ride. The search is for a person who has experience and can be relied upon."

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