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Corporate Apr 3, 2013

PE, M&A activity seen growing in agri, food on consumption story

By Sourav Majumdar

Mergers & acquisitions (M&A) and private equity activity are seen rising in the growing agri- and food sectors, as the domestic consumption story, which still remains strong despite the overall slowdown, is expected to attract investors both domestically and from overseas, a survey has shown.

The agri- and allied sector forms an integral part of the Indian economy, accounting for 14 percent of the GDP in FY12 and providing employment to 50 percent of the labor force.

M&A deal volumes in the sector actually increased in 2012, with 33 deals in the year, compared to 27 in 2011

M&A deal volumes in the sector actually increased in 2012, with 33 deals in the year, compared to 27 in 2011

The sector-specific version of Dealtracker, a periodic study of deal activity put out by assurance, tax and advisory firm Grant Thornton in India, says M&A deal volumes in the sector actually increased in 2012, with 33 deals in the year, compared to 27 in 2011. However, 2012 figure was lower than in 2010, where 50 deals were struck in the sector.

The total value of M&A deals in 2012 in the sector stood at $624 million, compared to a higher figure of $714 million the previous year. According to the survey, in all the three years - 2010 to 2012 - the top two deals aggregated between $380 million and $540 million. The big deal in 2012 was the 100 percent acquisition of Adelie Foods by India Hospitality Corp for $350 million. In each of the three years, the top two deals turned out to be cross-border, five outbound and one inbound.

On the PE side, there were 12 deals in 2012, totaling $229 million. While the number of deals was lower in the year than 2011's 19 deals, in value terms it was higher than that year's figure of $173 million, Dealtracker says. The higher value was mainly due to the $105 million deal between PE major Temasek and Godrej Agrovet.

Spurt in QSR and fine dining deals

PE players are keenly eyeing the quick service restaurants (QSR) and fine dining end of the agri- and food sector, as the healthy domestic consumption and spending story keeps this segment growing at a good clip. "Today, with changing lifestyles and the creation of destination areas, there is a trend towards outdoor leisure of which dining forms an important part. Further, the nuclear family concept, where both adults are working, necessitates outdoor eating. All this has provided an opportunity to different restaurant formats to scale up and hence the need for capital from PEs," says Dhanraj Bhagat, Leader-Food and Agriculture and Partner, Corporate Finance at Grant Thornton India.

In 2012, some of the major investments in the QSR and fine dining space were Premji Invest's $25 million deal with JSM Corp and Aditya Birla PE's $10 million investment in Olive Bar and Kitchen. There was also the first ever fine dining restaurant IPO in India in 2012, when Specialty Restaurants, which runs the Mainland China and Oh! Calcutta chains, tapped the market to raise Rs 180 crore. PEs like SBI, Morgan Stanley, HSBC and Reliance were its anchor investors.

The QSR-fine dining sector is expected to continue witnessing smart growth and PE interest going forward, since it is relatively less affected by the downturn, thanks mainly to the domestic consumption cushion.

by Sourav Majumdar

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