“It will be an all-cash deal that would involve Vadilal’s promoters exiting both their companies completely. The transaction is likely to value the business at around ₹1,000 crore," one of the two people said, requesting anonymity. Investment bank Lincoln International is advising Vadilal on the transaction, the person added. Rajesh Gandhi, Virendra Gandhi and Devanshu Gandhi, along with other family members, form the promoter group.
The rift in the family began in 2015, when Virendra Gandhi accused brother Rajesh and cousin Devanshu of mismanagement and financial misappropriation. The legal battle continued for four years, following which the two Vadilal companies told exchanges on 24 August last year that its promoter-directors have withdrawn all allegations against each other, except two related to “inappropriate" payments and personal expenses being classified as official.
The purchase of a controlling stake in Vadilal will give the Arpwood Partners-PAG combine a 7% market share in the Indian ice cream and frozen food market, estimated to be more than ₹11,000 crore in size, according to an April report by India Ratings. Vadilal is present across north India and is most popular in Gujarat.
“The talks between Arpwood Partners and Vadilal group promoters were on for a long time, but the transaction got delayed due to pending litigation between the two brothers," the second person said, also requesting anonymity. PAG manages $30 billion in assets across various classes, while Arpwood is an advisory and investment firm founded by investment banker Rajeev Gupta.
The person added that the promoters are looking to exit due to the family feud as well as succession-related issues.
As of 31 December, the promoter and promoter group entities together controlled a 64.73% stake in Vadilal Industries and 51.26% in Vadilal Enterprises, the distribution arm.
While emails sent to Lincoln International, Arpwood Partners and Devanshu Gandhi remained unanswered till press time, PAG declined to comment on the matter. Calls, emails and text messages sent to Vadilal director Rajesh Gandhi did not elicit a response.
Having started with a small retail outlet in 1926, Vadilal Group today operates through the two listed firms, Vadilal Industries and Vadilal Enterprises.
While Vadilal Industries makes ice cream and frozen food through its two manufacturing plants at Pundhra, Gujarat and Bareilly, Uttar Pradesh, Vadilal Enterprises sells ice cream in the domestic market and takes all marketing decisions such as geographical presence and pricing of stock-keeping units for Vadilal Industries.
In the year ended 31 March, Vadilal Industries reported sales of ₹507 crore while its net profit stood at ₹31 crore. Vadilal Enterprises posted a profit of ₹8.9 lakh on sales of ₹573 crore.
Gujarat Cooperative Milk Marketing Federation Ltd, which sells products under the Amul brand, is the leading firm in the ice cream and frozen desserts segment in India, while Hindustan Unilever Ltd (HUL) is the second-largest, as per a Euromonitor report.
“Consolidation has been a major reason for deals within the ice cream segment, as smaller and mid-size brands are finding it difficult to scale up their businesses, while maintaining profitability," said Gopal Agrawal, co-head of investment banking at Edelweiss Securities. “Also, intense competition from bigger brands such as HUL and Amul makes it even more difficult to remain profitable in the market."
“Some of the past deals in the ice cream segment have happened at anywhere between two and three times their sales multiple, and there is interest within private equity firms as well to play and support the consolidation story," added Agarwal.
In the past two years, the ice cream business in the country has seen significant interest from domestic and foreign strategic firms. In November 2017, South Korea’s Lotte Confectionery Co. Ltd acquired Ahmedabad-based ice cream maker Havmor Ice Cream Ltd for ₹1,020 crore.
HUL, which already sells ice creams under the Kwality Walls, Magnum and Cornetto brands, in August 2018, acquired Adityaa Milk ice cream brand from Karnataka-based Vijaykant Dairy and Food Products Ltd for an undisclosed amount.
Mint reported on 23 December that promoters of Nagpur-based ice cream maker Dinshaw’s Dairy Foods are also looking to sell a controlling stake in the company.