TA Associates in lead to invest $100 million in Coffee Day Group

TA Associates, US-based global private equity powerhouse, is understood to be in the lead to invest up to as much as $100 million in Coffee Day Group, the Bangalore-based diversified group which has major presence in coffee chains, wealth management, logistics and hospitality.

The funding will be at the holding company level. The group had earlier raised a record $200 million in mid-2010, one of the large private equity transactions that year.

Founded in 1968, TA Associates, based in the US, is among the largest middle-market growth private equity firms. It recently co-invested in Dr Lal Pathlabs, a pan-India diagnostic chain along with WestBridge Capital.

Investment bankers who are in the know about Coffee Day Group's fund raising plans said that in addition to TA Associates, Barings Asia also had discussions with V G Siddhartha, the chairman of Coffee Day Group over possible investments, but there was some distinct gap in the valuations.

It is understood that Coffee Day Holdings is looking to deploy fresh resources to reduce the consolidated debt at the holding company level in addition to investing for growth.

Coffee Day Group chairman V G Siddhartha and TA Associates could not be reached for comments.

Coffee Day Group, it is understood, is under a debt of $130 million on a networth of close to Rs 1,200 crore, and majority of that debt was raised to give exits to earlier investors in Cafe Coffee Day and to acquire Sical Logistics from A C Muthiah Group during late 2010.

As part of its fund raising plans, Coffee Day Group is also looking to raise debt of Rs 100 crore through the NCD route with tenor upto 36 months. For the fresh debt raise, Coffee Day Group proposes to issue secured redeemable NCDs of Rs 100 crore and it is being secured by way of security collateral of 2.25x pledge of equity shares of MindTree, Sical Logistics and Amalgamated Bean Coffee Trading Limited (ABCTL) in a combination of listed and unlisted shares and by personal guarantee of the promoter.

Siddhartha has also relied on debt to increase his stake in publicly held mid-tier software exporter MindTree Limited, which he helped co-found more than a decade ago.

According to senior private equity fund managers, Siddhartha had indicated that post this fund raise, investors will have an option to exit through a public offer over a period of time, a change from the earlier strategy of raising funds through structured transactions.

Global blue chip private equity investors - Kohlberg Kravis Roberts (KKR), Standard Chartered Private Equity and New Silk Route Advisors (NSR) led the previous $200 million fund infusion into Coffee Day Holdings at an valuation of just under $700 million. Investment bankers further added that various combinations are being explored this time around as well including a structured transaction.

It is understood that around 28% is held by these investors while the rest is held by the promoters. Prior to that, other private equity investors including Sequoia Capital, Darby Private Equity (a part of Franklin Templeton), Deutsche Bank, IFC were among the investors in Cafe Coffee Day when the cafe business was being put through rapid expansion.

Coffee Day Group currently is the largest Indian operator of cafes with close to 1,500 cafes and on an average has a target to add anywhere between 200-300 cafes annually. The total revenues of the Group is understood to be in the range of Rs 4,000 crore including the 14,000 acres of coffee plantations under ABCTL, which will not be included in the fund raise.