Mumbai:Affinity Beauty Salon Pvt. Ltd is in talks with private equity (PE) firms to raise as much as 100 crore by selling a significant minority stake to fund its expansion plans, according to a company official.

When the deal closes, it will be one the largest PE funding rounds for a salon and spa chain in India. Coralbay Advisory or Coral Bay Advisors Pvt. Ltd is advising the company on the transaction.

The grooming, salon and spa space is currently dominated by small-ticket transactions. Between January and November 2012, there were four transactions worth $3.7 million, according to an estimate by VCCEdge, which tracks investment activity in the country. There has not been a single deal in this segment this year. In 2011, there were two deals worth $30,000, while in 2010 there were seven transactions worth $20.3 million.

Affinity Beauty Salon has outlets at 31 locations across New Delhi, Punjab, Chandigarh and the National Capital Region. Eyeing a national presence, the company is now entering Uttar Pradesh, Maharashtra and Goa and intends to have 100 salons over the next two or three years.

“We have received letters of intent and we are in talks with four to five investors. We should be able to close the funding round before the year end," said Vishal Sharma, founder and chief executive officer (CEO) of Affinity Beauty Salon. Sharma, however, did not disclose the names of the funds he is in talks with. Sharma said he is talking to investors who like the domestic consumption story. “We are not talking to very large investors. We are open to creating structures so that valuations are not an issue," he added.

Founded in 1992, the New Delhi-based Affinity Beauty Salon has two brands—Affinity Salons and Head On-Hair and Beauty Studio—and employs around 900 people. The company intends to operate and own Affinity salons but will franchise Head On. It’s profitable and serves around 100,000 customers every month, according to Sharma.

Affinity is also considering growth through acquisitions and is in talks with two fitness salons. It also plans to diversify into nail bars, dermatological and laser treatments, and hair therapy, Sharma said.

The domestic consumption story is strong and will continue to be so in the next five to 10 years, said Amit Gupta, co-founder of Coralbay Advisory. “It is not a question of demand; it’s about execution and creating ventures that are scalable and handle the stress that expansion brings."

Last year, PE firm Everstone Capital acquired a significant stake in Bangalore-based R&R Salons Pvt. Ltd, which operates the YLG salon chain. Venture Capital firm Helion Venture Partners incubated R&R Salons and invested Rs20 crore in it in 2009. In 2012, Belita Retail Pvt. Ltd raised funding from an angel investor. In October, Godrej Consumer Products Ltd entered the hair salon segment by acquiring a 30% stake in Mumbai-based premium hair salon chain B:blunt for an undisclosed amount.

According to an August study conducted by industry lobby group Federation of Indian Chambers of Commerce and Industry (Ficci) and consulting firm PricewaterhouseCoopers, the size of the wellness industry in India is expected to grow to around 1 trillion by 2015, at a compounded annual growth rate of 15-17%, from about 70,000 crore in 2012. Beauty care would have an almost 50% (about 49,000 crore) of the wellness industry, study said.

Salon chains present an attractive investment opportunity, said Siddharth Bafna, partner and head of the corporate finance and transaction services practice at financial consultancy firm Lodha and Co, adding that with higher disposable income and greater awareness, both men and women are spending more on personal grooming.

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