India Value Fund to buy denim-maker Spykar

Enterprise value, say sources, set finally around Rs 280 crore; negotiation to be announced next month

India Value Fund Advisors (IVFA), a India-focused private equity (PE) fund, with a corpus of $1.2 billion, is set to acquire a controlling stake in Spykar Lifestyle, a leading maker of denim in India.  

In this secondary transaction, where one PE investor sells to another, Avigo Capital Partners will sell their 60 per cent stake in Spykar to IVFA, sources in the know said. The deal is likely to be announced by next month.

The enterprise value of Spykar would be Rs 280 crore. It is learnt IVFA will pay half of this upfront and the rest later. A valuation mismatch is learnt to have a caused a long delay in closing the deal. Avigo was looking for an enterprise valuation of Rs 350-400 crore for Spykar.

Another contender in the race for Spykar’s control was Future Group, owned by Kishore Biyani. It is learnt Future withdrew last month. Spencer’s Retail of the RP-Sanjiv Goenka Group, the Aditya Birla Group and Everstone Capital were also interested in acquiring Avigo’s stake in Spykar.

When asked, Avigo’s managing director, S Harikrishnan, refused to comment. A mail sent to Vishal Nevatia, managing partner of IVFA, did not elicit a response till the time of going to press.

In 2011, Avigo, after bringing in its global investor, Metmin Investments, had acquired about 30 per cent in Spykar by investing about Rs 30 crore. Metmin is owned by Raj Bagri, a non-resident Indian tycoon, earlier a chairman of the London Metal Exchange. In 2007, Avigo had invested about Rs 25 crore in Spykar. Spykar’s founder, Prasad Pabrekar, holds 40 per cent in the company.

The products of Spykar, established in 1992, are sold through 1,000 multi-brand and 200 exclusive brand outlets. According to persons in the know, its revenue last year was Rs 180 crore.

A recent report by retail consultancy Technopak Advisors says denim is the fastest growing apparel segment, with a compounded annual rise of 16 per cent. The denim market in India is pegged at Rs 8,000 crore.

“Despite the not so optimistic economic scenario of 2012, the demand for denim is growing among men, especially the younger generation. The market in India hinges around the men’s denim segment”, said the report; this is about 80 per cent of the total. The domestic apparel market was worth Rs 2.07 lakh crore ($38 billion) as of 2012. It is expected to grow at a compounded yearly average of nine per cent over the next decade.   

On the back of the successful exit from Spykar, Avigo has readied exits from other portfolios, too, of its SME Fund-II. Sources say it has started early stages of discussion with PEs and other strategic investors to sell its stake in Rinac India, the Bangalore-based air-conditioning solutions provider.

According to VCCEdge, the PE sector has made 51 exits worth $1.8 billion till date in 2013. There were 24 open market exits worth $1.1 billion during the period.