June 2013
« May   Jul »

Contact us

India Value Fund in advanced talks to buy stake in Spykar

Private equity (PE) investor India Value Fund Advisors is in advanced talks to buy the controlling stake of Avigo Capital Partners and Metmin Investments in financially strained casual-wear company Spykar Lifestyles Pvt. Ltd, according to two people directly involved in the negotiations.
Avigo and Metmin jointly hold a 60% stake in Spykar, said one of the two persons. India Value Fund is “doing due diligence and has emerged as the final contender”, he said on condition of anonymity. Once the process is completed, it will take three to four weeks to close the deal, the person said.
Spykar’s promoters, Prasad Pabrekar and Harshada Pabrekar, hold the remaining 40% stake in the company.
“In this round, the new investor could end up having stake of as much as 76%. The investors will exit and there could be a partial stake sale by the promoters,” the person added.
The onset of the global financial crisis in 2008 hit Spykar as it did many other retailers, forcing them to shut stores and cut jobs for survival. In the year ended March 2012, the company’s net loss widened to Rs.16.89 crore from Rs.15.73 crore in the previous year on a 13% increase in revenue to Rs.179.56 crore, according to the latest available data with the Registrar of Companies.
A mail sent to Achal Ghai, founder and managing director of Avigo Capital, went unanswered.
Vishal Nevatia, managing partner of India Value Fund, did not respond to an email from Mint. Sanjay Vakharia, director of marketing and Prasad Pabrekar, managing director of Spykar, also did not respond to text messages and phone calls.
“Our performance has improved in the last year and we are getting (a) new investor on board,” Prasad Pabrekar told Mint on the phone two weeks ago.
Avigo Capital had offered a loan of Rs.34 crore to Spykar, translating into a 28% stake. In 2011, Avigo brought in Metmin Investments as a co-partner and acquired a controlling stake in Spykar. Metmin Investments invested Rs.30 crore for a 32% stake in Spykar.
The transaction with India Value Fund will be a structured deal, including cash and earn-outs based on the company’s performance over the next one-two years. Earn-outs refer to benchmarks that the company has to achieve, failing which the stake will go to the buyer without any extra payment.
“The investors will get Rs.75-80 crore upfront. Returns on the transaction will be based on the upside that will come out from the new business plans that will be put into place,” said the person cited above, adding, “Right now, with the upfront payment, Avigo could make 1.6x (times) returns. If the results of the business plans are achieved, they will make 2.5x.”
A private equity (PE) buyer would typically link such future payment to the performance of his investment—for instance, a PE fund buying out a company may be willing to share with the seller a part of any return it earns over a certain threshold internal rate of return (IRR) at the time of its final exit, said Siddharth Bafna, partner and head of the corporate finance and transaction services practice at Lodha and Co., a financial consultant.
“While not entirely standard, it is fathomable that a seller making a complete exit would be willing to accept a part of the consideration in the future, in the event of a gap in the valuation expectations of the buyer and the seller,” said Bafna.
Experts say the apparel sector is challenging from an investment perspective.
“Challenges include the fact that there are not too many large brands available for investment and also the sector (is) facing corporate governance issues,” said Santosh Verma, director (investment banking) at IDFC Capital Ltd.
In the past, companies like Koutons Retail India Ltd, Gini and Jony Ltd and Lilliput Kidswear Ltd were unable to pay their debts as they struggled with large inventories and slowing sales, leading to huge losses. Similarly, S. Kumars Nationwide Ltd (SKNL) has been unsuccessful in publicly listing Reid and Taylor and repaying its debt.
All these brands—Koutons, Gini and Jony, Lilliput and Reid and Taylor—are backed by private equity investors.
The room for exits in the apparel space is limited.
There have been 98 venture capital and PE deals worth $1,426.5 million in the apparel business in the country since 2007, according to estimates by VCCEdge, which tracks investment activity in the country. There have been 41 exits in this space since 2007, worth $401.5 million. Of these, 27 were made through the open market, six through buybacks by promoters and four each through secondary and strategic sales.
Source: Livemint

Comments are closed.