PE deals in FMCG move up in 2012

Private equity (PE) deals in the fast-moving consumer goods (FMCG) space have seen a rise this year. Data by audit, tax and advisory firm Grant Thornton shows the number of PE deals in January-September stood at 11, compared with seven in the year-ago period and four in the first nine months of 2010.

Together, the eleven deals this year were worth $351.96 million (Rs 1,760 crore), against $71.30 million (Rs 357 crore) in January-September last year and $210.64 million (Rs 1,053 crore) in January-September 2010.

Merger and acquisition (M&A) deals in the FMCG sector, however, fell to 12 in January-September, against 17 and 26 in the corresponding periods of 2011 and 2010, respectively.

Raja Lahiri, partner (transaction advisory services), Grant Thornton, says the trend of more PE deals in the FMCG sector is likely to continue. “There is need for more expansion capital in FMCG, as companies, both big and small, are looking to grow on the back of a spurt in consumption. This makes it attractive for PE players to step in. This is why PE deals are likely to be more than M&A deals,” he says.

According to India Retail Report, a recent report on FMCG and retail companies by Business Monitor International, private consumption in India grew an estimated 16.2 per cent from Rs 44.11 lakh crore in 2011 to Rs 51.26 lakh crore this year. This has fuelled both FMCG and retail businesses in India, with the retail segment (both traditional and modern trade) growing from Rs 22-23 lakh crore last year to Rs 28 lakh crore this year.

Analysts say the FMCG sector is likely to touch Rs 6.2 lakh crore by 2020, compared with the current Rs 4 lakh crore. This, they say, is because the pace of growth of FMCG companies has increased in the last few years. Compared with a compounded annual growth rate of about 11 per cent between 2000 and 2010, FMCG companies are now growing 12-17 per cent a year.

Against this backdrop, analysts say, the need for capital is set to grow, as companies look at ways to address the growing market.

Major PE deals this year include Godrej Consumer Goods’ sale of about five per cent stake to Singapore-headquartered private equity player Temasek for Rs 685 crore and the sale of 4.8 per cent stake by Marico to Baring and GIC for Rs 500 crore.