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Business News/ Companies / Regional brands pick of the lot for PEs, large firms
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Regional brands pick of the lot for PEs, large firms

Deals in FMCG have seen a fivefold growth to $318 million till November 2015 against $61 million in 2014

Emami acquired Kesh King from Himachal Pradesh-based SBS Biotech at a valuation of 5.5 times annual sales of Rs300 crore, while Indulekha was paid about three times its annual sales of Rs100 crore. Photo: Indranil Bhoumik/MintPremium
Emami acquired Kesh King from Himachal Pradesh-based SBS Biotech at a valuation of 5.5 times annual sales of Rs300 crore, while Indulekha was paid about three times its annual sales of Rs100 crore. Photo: Indranil Bhoumik/Mint

Regional fast-moving consumer goods (FMCG) brands in India have seen a parade of suitors come calling in 2015 and a flurry of deals.

This year has witnessed large deals including the $260-million ( 1,651 crore) acquisition of the hair and scalp care business Kesh King by Emami Ltd; the 330 crore acquisition of Indulekha hair oil brand by Hindustan Unilever Ltd and a $100 million private equity investment in biscuits maker Cremica.

Deals in FMCG have seen a fivefold growth to $318 million till November 2015 against $61 million in 2014, according to data from Grant Thornton. The $49.8 million ( 330 crore) Indulekha acquisition happend in December.

Emami acquired Kesh King from Himachal Pradesh-based SBS Biotech at a valuation of 5.5 times its annual sales of 300 crore and Indulekha brand was paid about three times its annual sales of 100 crore.

“We anticipate more transactions in local market leaders to continue in 2016 as well," said Ritesh Chandra, head, consumer, Avendus Capital Pvt. Ltd.

Many private equity (PE) investors also bought stakes in companies with strong regional brands in the year.

“The volume of PE deals in the FMCG sector has gone up by 38% but in value terms the growth is around 58%. One reason for the growth in value is the large deal size of nearly $100 million in Cremica Food Industries Ltd. In comparison, the largest deal size in 2014 was about $50 million in Global Beverages and Foods," said Dhanraj Bhagat, partner, Grant Thornton India LLP.

PE deals rose to $251 million in 2015 from $158 million in the previous year.

In the second week of December, a consortium of investors led by CX Partners and Gateway Partners acquired a 48% stake in Ludhiana-based Cremica Food Industries Ltd, which owns the Cremica brand, for $100 million. Cremica sells its products through a network of more than 1,500 distributors across north India.

Other large PE deals include a $45 million investment by AION Capital Partners in Varun Beverages Ltd, a bottling and distribution franchisee of PepsiCo India Holdings Pvt. Ltd, and Premji Invest’s $33-million deal in Hygienic Research Institute Pvt. Ltd, one of the largest home grown haircare-focused FMCG companies.

Gurgaon-based Hector Beverages Pvt. Ltd, which sells drinks and beverages under the Paper Boat brand, raised $29 million ( 180 crore) from Hillhouse Capital, Sequoia Capital and Catamaran Investments Pvt. Ltd.

However, the overall merger and acquisition (M&A) deals in FMCG declined 80% to $686 million in 2015.

The fall was attributed to the sharp decline in cross-border deals this year. Cross-border deals declined 88% to $364 million in 2015 from $3.2 billion in the previous year.

Among cross-border deals, the value of inbound transactions (or Indian acquisitions by foreign firms) dropped to $364 million in 2015 from $3 billion in the previous year, according to data compiled by Grant Thornton.

“There is a lack of buyout targets for multinationals while Indian companies are digesting their previous outbound acquisitions and reluctant to do more foreign buys. Large Indian companies are occupied with integrating the previous acquisitions and keep focusing on the domestic market," said Deepam Sanghi, director at investment bank Rothschild India.

Industry experts say that the consolidation process will continue in 2016.

“Large domestic players and MNCs will eye strong regional brands to expand product categories while regional brands will get access to the national distribution network of large players. This trend will relocate and accelerate investment activity in other categories such as food, OTC (over the counter) products, apparel brands and spices," said Narayan Shetkar, director, Singhi Advisors.

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Published: 28 Dec 2015, 01:10 AM IST
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