Mid-market private equity firm Samara Capital and US-based e-commerce giant Amazon.com Inc. have signed an agreement to buy Aditya Birla Retail Ltd’s (ABRL) food and grocery retail chain More.
ABRL’s holding companies, RKN Retail Pvt. Ltd and Kanishtha Finance & Investment Pvt. Ltd, inked a pact to sell almost 100% of the privately held retail chain to an entity controlled by Samara, according to a stock-exchange disclosure.
According to a person familiar with the matter, who didn’t want to be named, Samara will own a majority stake in the retail chain while Amazon will hold a minority stake. The PE firm declined to comment. Amazon didn't respond to a request seeking comment till the time of filing this article.
Samara had been in talks with ABRL for the transaction for the past few months. In May, VCCircle reported that the PE firm was likely to rope in its limited partners—or investors in its funds—to buy a 50-60% stake in ABRL.
The deal was struck at an enterprise valuation of Rs 4,200 crore ($580 million at current exchange rates), The Economic Times reported, citing two industry executives it didn’t name. Samara will have a 51% stake in More while Amazon will hold the balance 49%, the report said.
ABRL, part of diversified conglomerate Aditya Birla Group, runs 523 supermarkets and 20 hypermarkets under the More brand, its website shows. It is the fourth-largest supermarket chain in the country after Reliance Retail Ltd, Future Group and DMart.
For Jeff Bezos-led Amazon, which competes with Walmart Inc.-owned Flipkart in India’s e-commerce market, the acquisition will give it a ready base to expand its Indian grocery retail business for which it had earmarked $500 million last year. Amazon started rolling out its food retail venture in India this year. The venture will sell third-party items as well as Amazon's food products produced and packaged locally.
The deal is also in line with Amazon's offline-to-online retail strategy that it has deployed in the US with the acquisition of grocery chain Whole Foods Market Inc. for $13.7 billion last year. In India, it had last year bought a 5% stake in brick-and-mortar retail chain Shoppers Stop Ltd to enhance its offline retail play.
For Samara, the deal marks its biggest and the most high-profile bet so far. The PE firm typically invests $15-100 million in a single transaction. Samara is investing out of its second fund, which has a corpus of $300 million, and is looking to raise its third fund. It has previously invested in companies including diagnostics firm Thyrocare, media firm Cogencis and brokerage firm Sharekhan.
The PE firm’s most recent deals include the acquisition of Spoton Logistics Pvt. Ltd along with Xponentia Fund Partners. Samara struck its debut deal in the human resource management segment two months ago when it tied up with Goldman Sachs and Janchor Partners to acquire staffing firms Innovsource Services and V5 Global Services.
It isn’t yet clear how Samara and Amazon will structure the ABRL transaction to ensure they meet Indian regulations that allow foreign direct investment of only up to 51% in multi-brand retail.
However, since Samara’s funds are sponsored and managed by Indians, the investment vehicle will be considered a domestic entity irrespective of the dollar capital it may have raised from foreign investors.
Typically, foreign investors structure retail deals in India by splitting the business into front-end and back-end operations to allow the PE firm to get full control of the wholesale supplier to the retail arm, which doesn’t have FDI restrictions. In a recent deal, Swiss investment firm Partners Group and homegrown PE firm Kedaara Capital had acquired Vishal Mega Mart in a similar manner.
For the Aditya Birla group, the deal marks its exit from a sector where it had entered in 2007 with the acquisition of Trinethra Super Retail. While the group, led by billionaire Kumar Mangalam Birla, subsequently expanded its food retail business presence across the country, ABRL had been bleeding all along. Between 2008 and the year ended March 2017, it clocked net losses of around Rs 5,500 crore, shows VCCEdge, the data research platform of News Corp VCCircle.
For the year ended March 2017, ABRL posted a 20% rise in revenue to Rs 4,193.5 crore but net loss was little changed around Rs 644 crore.
Aditya Birla Group also has a strong presence in the fashion retail business. It had a clutch of apparel brands such as Louis Philippe, Van Heusen, Allen Solly and Peter England, and struck a deal to acquire Pantaloons fashion retail chain from Future Group.
In 2015, it consolidated its branded apparel business under its lifestyle retail arm and renamed it Aditya Birla Fashion & Retail Ltd, creating India’s top-branded clothing company by revenue and number of outlets.
