PE funds invested $300 mn in food processing, agri-based companies

Food processing and agri-based companies seem to have caught the attention of private equity (PE) investors, if the recent investment numbers released by accounting and consulting firm Grant Thorton are anything to go by.

PE players have invested $300 million in these companies during January-June this year, according to Grant Thorton. In 2009 calendar year, PE investments in these sectors were about $398 million. The comparative figures in 2008 and 2007 were $187 million and $4.3 million, respectively.

“The writing is on the wall. PE activity is growing in the space,” said C G Srividya, partner, specialist advisory services, Grant Thorton. According to Srividya, PE players are attracted by greater professionalism and accountability, openness to outside investment, and fairly attractive valuations of these companies.

But Gaurav Mathur, managing director of India Equity Partners (IEP) Fund Advisors thinks different. “Valuations vary from company to company. But yes, some promoters are moderate in their expectations, while some are not. It boils down to the negotiations you have with promoters and how you can strike a path in between which is win-win for all,” he said.

Mathur said the deal sizes were not large in this space, but the money was sufficient to give promoters the boost they were seeking for. “We are working on a few investments, which are not large, but it will help the promoter, if we get involved,” he said.

For instance, Bakers Circle — a Delhi-based Rs 12-crore company, which provides premium dough and desserts to quick service restaurants, food and ice-cream manufacturers, and air caterers in the country — was able to set up a new facility in Uttarakhand a few years ago, with the help of private equity investor Global Emerging Markets (GEM), New York. “Till date, the fund has invested Rs 8 crore,” said Dev Lall, chief executive officer, Bakers Circle. “It started with Rs 4 crore, but was taken up over time.”
 

THE PE PLATTER
PE INVESTMENT IN LAST 3 YEARS
Year	2007	2008	2009	2010 (Jan-June)
Value ($ million)	4.3	186.31	397.67	270.4

PE INVESTMENT IN JAN-JUNE 2010
Month	Investor	Company	Value ($ mn)
February	Subhkam Ventures	Nagarjuna Agri Tech	N.A
April	Summit Partners	Kishidhan Seeds	30
March	Rabo Equity Advisors	Global Green Company	10
March	Nine Rivers Capital	Global AgriSystem	7
March	New Silk Route	Coffee Day Holding	75
March	KKR	Coffee Day Holding	75
March	Standard Chartered PE	Coffee Day Holding	50
June	Carlyle Group	Tirumala Milk Products	23
Source: Grant Thorton

GEM, said Lall, acquired a 34 per cent stake in the company for this investment. “That is a sizeable chunk, but for an investor to be interested in your business, you need to offfload a decent amount of stake,” he said.

By some estimates, PE investors prefer taking about 20 per cent and more in a firm to participate in its growth story. “It depends on which stage you are coming in,” said Ashok Saraf, senior general manager, ICICI Bank. “If you are an early-stage investor, yes, you would like to participate in the company’s growth story by taking up a sizeable stake.”

Agrees V K Arora, managing director of LT Foods. A year ago, Rabo Bank invested Rs 50 crore, or $10 million, in LT Foods and subsidiary Daawat Foods. “The bank put in Rs 25 crore, or $5 million, in LT and the balance in Daawat,” he said. “The stake it took in the latter was 27 per cent, while in LT it was 14 per cent...So far, we have had no issues with them. Our relationship is fine.”