Consumer Spotlight M&A and Private Equity Perspective on the Consumer Sector
Q2 FY2016
Mumbai
│ Bangalore
Merisis’ Consumer Sector Coverage
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India’s consumer packaged goods and retail sectors may not be able to sustain the high growth path solely on consumption-led demand in the wake of structural bottlenecks, as per FICCI report.
Consumer Goods & Services
The online grocery market in India is growing at 25-30% annually in metropolitan areas and large cities and only 5% to 8% of all grocery stores are organized corporations. Hence, it’s a challenge for companies to get local “mom and pop” or kirana stores on board due to existing gaps in technology and integration
Indian e-commerce market is likely to reach USD 8.5 Billion by 2015 It is estimated that online retail will be an $18 billion industry in India by 2018 and ecommerce logistics will be a $2 billion industry by 2019 Re-rating of Unicorn start-ups valuation globally likely to have an impact on funding and valuation in India
E-Commerce
Large ecommerce players looking at ‘aqui-hiring’ - not just for skilled people but for innovative ideas Indian financial services firms delivered the second-highest return on invested capital for private equity firms during 2009-13, according to a study by McKinsey & Co
Finance
RBI’s decision to grant 11 payment banks license and 10 small banks license in this quarter is likely to see more deal activity. 9 out of the 10 entities that received the RBI’s in-principle license for small finance bank might have to raise an estimated INR 4,000 crore ($606.2 million) from domestic investors to bring down their foreign shareholding to 49%
India's healthcare sector is expected to reach $280 billion by 2020, growing at a compound annual growth rate of 16%, says a FICCI-KPMG report and set to create 7.4 million jobs Home healthcare picks up pace in India thanks to digital technology and the positive fillip in e-commerce industry
Healthcare
The healthcare segment is gaining traction as it has attracted foreign funds to the tune of USD 3.37 billion in January-July 2015
The education market in India is worth USD 100 billion annually. Ed-tech startups are contributing to a changing trend in education in India Real-time book updates, online tutoring, edutainment and online test preparation are some of the business models through which education startups are trying to cater to a larger audience. Using technology they have been able to reach tier II and tier III cities
Education
Govt. of India approved a proposal to bolster ties between India & Germany in higher education sector in the field of research, skill development & faculty development
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Investment Activity - India Macro Overview Aiming to reap significant benefits from continuing reforms, Finance Minister Arun Jaitley said all macroeconomic parameters including fiscal deficit and inflation appear positive and hoped that GDP growth would exceed 7.3% rate of last year For 2015-16, the government aims to restrict fiscal deficit to INR 5.55 lakh crore, or 3.9% of GDP. Implementation of Goods and Services Tax (GST) is very high on the government’s priority list where they have set a deadline of April 1, 2016 for its implementation Consumer Industry Overview India’s resilient consumer spending is an advantage, as demand decelerates almost everywhere else. For years, growth in India has been fueled more by domestic demand than by exports India’s retail market is expected to cross $1.3 trillion by 2020 from the current market size of $600 billion, expected to grow at a CAGR of 15 - 20% Modern retail with a penetration of only 5% is expected to grow about 3x to $180 billion by 2020 from $60 billion in 2015 Deal Overview Private Equity Between Jan-Sept 2015, there were 928 PE deals worth $14.24 billion, the highest so far in volume and value for the Indian private equity Investments of $4.7 billion, spread across 342 deals, were made in Q2 FY2016; an increase of 53% in deal volume and 56% in deal value when compared to deal-making in Q2 FY2015 Merger & Acquisition M&A deals struck during Q2 FY2016 were recorded at 233 deals worth $6.8 billion. Compared to Q2 FY2015, deal volume declined 9%, deal value increased by a healthy 31% the growth being driven by outbound deals, which grew over 4.8x between the same period
Total Fundraising – Q2 FY2016 By Volume – 342 Deals 5%
9%
By Value - $4.7 Billion
2%
386
382
1,068
10% 1,383
52% 22%
1,425
248
Information Technology Financials
Consumer Services Health Care
Industrials Others
Consumer Fundraising - Q2 FY2016 By Volume – 200 Deals
By Value - $2.3 Billion
5%
5% 9% 16%
3
338 1,150
615
66% 220
E-Commerce Financials Health Care
Consumer Goods & Services Education
Total M&A - Q2 FY2016 By Volume – 233 Deals 8% 3% 9%
By Value - $6.8 Billion
2%
39
247
31%
629 787
1,817
10% 15%
Information Technology Financials Energy
1,852
1,554
22% Consumer Services Health Care Utilities
129
Industrials Materials
Consumer M&A - Q2 FY2016 By Volume – 36 Deals
By Value - $369 Million 0
5% 17% 32% E-Commerce Financials
43 41%
71 255
Consumer Goods & Services Education
Top 5 PE Deals in Q2 FY2016
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Snapdeal Snapdeal raised $500 million valuing them at $4.8 billion post money, funding led by SoftBank and new investors Wonderful Stars Pte and Alibaba on Aug 18, 2015
USD 500 million
Funds will be used to increase the number of merchants on its site to 1 million, from about 150,000 today
Oyo Rooms The $100 million deal values Oyo at around $400 million post money, funding led by new investor SoftBank and existing investors Sequoia, Lightspeed, & Greenoaks on July 14, 2015
USD 100 million
Funds will be used to expand the size of its network to 50,000 rooms across 100 cities by the end of this year, develop innovative technology products and up customer acquisition and for expanding into Asian countries
L&T Finance Holdings PE firm Bain Capital has bought close to a 10% stake in L&T Finance, arm of Larsen and Toubro Ltd, for INR 1,300 crore in two transactions
USD 100 million
The deal will help L&T Finance raise capital to allow L&T to divest some of its holding, meet its capital adequacy requirements, & for growth capital purposes at CAGR 25% over 3 years
Pepperfry The $100 million was a Series D funding round led by new investors Goldman Sachs & Zodius Advisors and existing investors Norwest and Bertelsmann India on July 27, 2015
USD 100 million
Funds will be used to expand its logistics footprint in Tier-3 & Tier-4 cities by adding to its growing fleet of delivery vehicles, open new distribution centers, expand assembly services, strengthen its technology platform and experience centers
Practo Technologies The $90 million deal values Practo at $525 million post money, funding led by new investor Tencent Holdings, Sequoia Capital Global Equities, Google Capital, Sofina Société, Yuri Milner, Altimeter Capital and existing investors Sequoia India and Matrix Partners on Aug 6, 2015
USD 90 million
Funds will be used to expand product lines, acquire more startups, enhance headcount, increase its lead in the doctor discovery business, accelerate its international expansion.
Top 5 M&A Deals in Q2 FY2016
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Share khan Ltd. BNP Paribas SA acquired Share khan Limited from The Rothay Group, Baring Private Equity Asia Fund, IDFC Private Equity, Samara Capital and Citi Venture Capital International for INR 22.4 billon on July 30, 2015
USD 350 million
Through this acquisition BNP, whose financial offerings in India include corporate and retail banking, investment banking and wealth management, will further expand into brokerages as well as asset management in India. P/E = 12.5x
IIFL Holdings Limited FIH Mauritius Investments Ltd made an offer to acquire 26.8% stake in IIFL Holdings Limited for INR 16.2 billion in cash on July 14, 2015
USD 255 million
Fairfax already holds 9% stake in IIFL through one of its investment through the HWIC Asia Fund and after the transaction will end up holding 35% , thus greater than the promoters shareholding of 29.8% Equity Value/Book Value = 2.4x
P/E = 13.1x
Kuoni Travels (India) Pvt. Ltd. Indian & Hong Kong Business
USD 84 million
Thomas Cook acquired Swiss tour operator Kuoni Group's business in India & Hong Kong for INR 535 crore as a part of its strategy to scale up the inbound business & explore Asia opportunity Thomas Cook will take in about 1,800 employees of Zurich-headquartered Kuoni’s business unit in India and Hong Kong. EV/Revenue = 2.76x (Historical 2014)
EV/EBITDA = 17.7x (Historical 2014)
The Royal Bank of Scotland Plc., Indian Private Banking Unit
Indian Private Banking Unit
Sanctum Wealth Management
USD 30 million
The Royal Bank of Scotland Plc. entered into a definitive agreement to sell its Indian private banking unit to Sanctum Wealth Management, a company led by the head of the business, Shiv Gupta in a management buyout transaction on July 27, 2015 for an undisclosed financial disclosures The deal was primarily to pull back from some foreign markets and to focus on UK retail and commercial banking. It will retain its private banking business, onshore clients and staff and will retain all branch networks currently operated by RBS India (Private Banking)
Mebelkart Technologies Private Limited Mebelkart announced it will receive $20 million in funding on August 18, 2015. The transaction will involve sole participation from new investor, Getit Infoservices to acquire more than 75% stake to complete a strategic investment in the growing furniture market
USD 20 million
Funds will used to enter the interior design and modular kitchen business and investing in creating augmented and virtual reality options on its site. Valuation - $26.7 million
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Notable PE Transaction Company Overview
Oyo Rooms is an Indian virtual hospitality brand. It aggregates budget hotels and guesthouses, making inventory discoverable and bookable online. Its branding provides a franchise-like consistency of product. It’s a managed marketplace of properties. OYO Rooms currently offers 14,000 rooms in 80 cities. Ritesh Agarwal, the founder of Oyo Rooms was the first Asian to graduate as a Thiel Fellow, a global contest in which he was the only winner from India. At 19, he chucked the idea of Oravel, the Airbnb clone, and changed his business to OYO Rooms.
Angel Round (Mar 2014)
Series A (Sept 2014)
Series B (Mar 2015)
Series C (July 2015)
$0.65 million
$5 million
$24 million
$100 million
• Lightspeed Venture Partners and other institutional investor
•New: Sequoia •Existing Investors: DSG Consumer Partners, Lightspeed
•New : Green Oaks Capital
•New : Softbank Group
•All existing Investors participated
•All existing Investors participated
Business Model It has developed an asset-light business model. It partners with hotels with the aim of standardization on various measures in each room including free Wi-Fi and breakfast, flat TVs, spotless white bed linen, branded toiletries, 6-inch shower heads, a beverage tray and similar amenities OYO doesn't own any of these properties, and instead, invests in marketing and management quality improvement for the hotels under its fold. It's a win-win for OYO and the hotels, many of whom just don't have the network, knowledge or the budget for smart marketing, and they run empty. OYO helps them improve their yields.
Competition Company
Merisis Opinion Amt Raised
Investors
USD 36 Mn
Orios Venture, Tiger Global
USD 6 Mn
Saif Partners, Matrix Partners
USD 5 Mn
Accel Partners, Kalaari Capital
USD 3 Mn
Mangrove Capital
• OYO rooms is a first mover & a leader in the rebranded budget hotels space. OYO has displayed how un-organized, offline business can move to the organized online space and take advantage of business potential that the connected digital world has to offer. The success of OYO has resulted in the creation of a new category in India and led to a flurry of new entrants into the space. • Yet, there are still a lot of un-organized spaces in the Indian market waiting to be structured through collective branding/re-branding and technology.
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Notable M&A Transaction Deal Overview
Indian & Hong Kong Business
Thomas Cook (India) Ltd., India’s premier integrated travel and travel related financial services company has signed a definitive agreement with Kuoni Group to acquire Kuoni’s Travel businesses across India and Hong Kong in entirety for a consideration of Rs. 535 crore. The acquisition will be financed through equity infusion, internal accruals and debt The Kuoni brand is licensed to the acquirer for one year in India and for five years in Hong Kong. Thomas Cook will pay Rs. 320 crore to add consumertravel brands such as SITA, SOTC and Distant Frontiers to its portfolio in India, overtaking Cox & Kings to become the top player in customized holiday bookings and the balance Rs. 215 crore for Kuoni's Hong Kong travel business As part of the acquisition, Thomas Cook (India) Ltd will take on approximately 1,800 employees of Kuoni’s business unit in India and Hong Kong tour operating, and will continue to run the business activities independently The acquisition of Kuoni’s India’s travel operations gives TCIL access to their 21 owned offices and 85 franchisees
Deal Value
EV/Revenue
EV/EBITDA
USD 84 Million
2.76x
17.7x
(Historical 2014)
(Historical 2014)
Deal Rationale Kuoni Group had announced its intention to sell tour businesses in India and other parts of world to focus on online travel, destination management and visa processing services This acquisition is expected to help TCIL, essentially a fragmented player in the travel industry, to strengthen its inbound and outbound tour offerings and consolidate its base in the market The deal gives Thomas Cook the scale and will help in better contracting and improve margins The acquisition of Kuoni’s HK business will give Thomas Cook (India) a foothold in China as HK is considered China’s gateway
Merisis Opinion The acquisition is part of Thomas Cook strategy to scale up the inbound tour business and expand in foreign markets With this acquisition Thomas Cook would become the largest tour operator in both inbound and outbound segments Also like other companies, Thomas Cook faces challenges from online travel companies that are growing at a fast rate. This acquisition also allows the company to face the challenge
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Sector Focus – Hyperlocal Logistics Introduction First there was E-commerce, then M-commerce and now it’s the time for N-commerce (Neighbourhood). With majority of the retail shopping still happening in the neighbourhood of the consumers, the hyperlocal logistic space can aspire to tap the entire retail market. Increasing number of consumer-facing hyperlocal platforms are seeking to serve their consumers directly to their homes to expand their business. Lack of credible 3rdparty logistics options force merchants to employ in-house personnel for logistics, which is not efficient or scalable. The market need has led to the growth of specialist express delivery services that are able to aggregate and meet the delivery demand requirements. A number of companies operating in the hyperlocal logistics space have also drawn investor interest. Some of them are: Company
Amt Raised
Investors
USD 11 Mn
Sequoia, Nexus, Blume
USD 8.8 Mn
Kunal Bahl, Rohit Bansal, Fidelity Growth
USD 1.6Mn USD 1.3 Mn USD 0.7 Mn NA
The total hyperlocal logistics opportunity is estimated to be between USD 3-6 billion. How the Business works In Hyperlocal logistics, typically a merchant makes a request for delivery once he receives the order from his customer. These orders have to be delivered in a time bound manner. Economic Model Analysis The most critical variables in hyperlocal logistics business: Revenue per Order: The hyperlocal logistics providers typically earn Rs.40-50 per order depending on either the time sensitivity or the size of the order. Time sensitive and big orders command premium pricing. Cost per Order: While the revenue per order is more of a fixed component, cost per order is a variable factor which can determine the viability of the model. Typically a rider can expect to earn Rs.20,000 – 22,000 per month. On 26 days a month schedule, his cost works out to approx. Rs.750 – 850 per day or Rs.75 - 85 per hour for 10 hour shift. A rider typically delivers an order in 45 minutes or delivers 12-14 orders in a day. Profitability Analysis per rider
Accel Partners
Particulars
Details
Orios Venture, Zomato Haresh Chawla, Oliphans, Zomato
No of deliveries per day (10 hr shift)
Revenue per day
Rs.480 - 700
Lightspeed
Rider Cost per day
Rs.750 - 850
Loss per day
-Rs. 50 – 370
How big is the Market Opportunity? India’s retail market is estimated at USD 600 billion in 2015 with 10% of the market share with organized retail. Catering to the organized retail which also includes ECommerce segment presents a USD 3 billion opportunity. While the entire unorganized retail segment may not use the services of the hyperlocal delivery provider, even if a mere 10% of them use these services (F&B brands, outlets on hyperlocal platform such as Grofers, PepperTap & 1mg etc.), it presents an additional market of USD 3 billion. Given the fact that retail players are just warming up to the hyperlocal concept, the market opportunity is huge.
Revenue per order
12-14 Rs.40-50
Lower revenues earned per rider against cost incurred makes the model economically less attractive. Reason for lower revenues is underutilization of rider’s working hours. Most of the hyperlocal logistics providers currently focus on catering to the demands of the F&B segment. Hence in a day you get 6 peak hours of delivery and 4 non-peak hours of delivery where there are fewer deliveries Hyperlocal logistics businesses will have to look for ways to utilize the non-peak hour optimally to become economically viable. Tapping into other hyperlocal industry verticals besides the scheduled delivery segment will go a long way in making the business model viable.
Sector Focus – Hyperlocal Logistics Generating maximum revenue per day from a rider through optimal utilization of the peak and non-peak hours will decide the viability of the business model. Technology a key enabler in the business A robust technology backend is critical to the success and scalability of this business. Technology helps in improving efficiency through route optimization, proper allocation of resources based on demand trends, tracking of riders and easy reconciliation etc. Will Hyperlocal Logistics become irrelevant in future? There is an argument that going forward the consumer facing platforms will like to have control over delivery as delivery is their touch point with the customer. While such a rationale makes sense, in reality managing front end and back end together is operationally difficult. If we look at the E-Commerce segment as reference, most of the ECommerce players also rely on outsourced services for fulfilling a major part of the delivery. Even in Hyperlocal, the front end platforms are focussing on managing the customers and looking at outsourced delivery partners for fulfilling the orders. For example Zomato, which has tied up with Pickingo and Grab to manage their deliveries. Other customer centric players in the hyperlocal segment are also either contemplating or doing pilots for outsourcing the delivery part of the business to these specialists. Even full service logistics provides including E-Commerce logistics providers may have to work with the Hyperlocal logistics players to outsource a part of their delivery requirement and maintain their own delivery channels only for the base load. Hyperlocal logistics as a business segment is here to stay Is the segment overcrowded? Another argument being made is that the segment has become competitive and overcrowded and consolidation is bound to happen. If E-Commerce, which constitutes ~1% of the retail market, can have 3-4 specialized logistics player, hyperlocal logistics which cater to the other 99% of the market should easily allow for 8-10 large players. How will the market evolve? While the market will have 8-10 large players, a few of them will have pan India presence while the rest will be strong players in a particular region.
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Logistics providers who have clients with pan India presence are likely to evolve into pan India players as the clients would like to work with 1-2 vendors nationally to ensure standard service offering. The rest of the payers will have a strong presence in the areas where they are currently present. Factors likely to impact the growth of the market Talent pool: Riders are the backbone of the business segment and will be the crucial factor for a company to attract business going forward. Hence retention of the riders in the network will be crucial given the fact that the attrition rates in the segment is north of 20%. Incentivising the riders with monetary as well as non-monetary benefit besides having a defined career growth path is important. Going forward the riders will have to be treated the way Blue collared employees are treated. Pricing war: Most of the logistics provider on the back of the funding are chasing market share by aggressively pricing their offering. Such pricing is economically unviable in the long run and the pricing will have to be rationalized in future. However there exist a concern that the business may fall significantly when the prices are increased going forward. Also will the merchants who have adopted the hyperlocal delivery due to the cheaper pricing stick when the prices are revised is a question to be answered. Merisis Take on Hyperlocal Logistics Hyperlocal logistics provides the retail merchants an opportunity to service their customers at home without the need to set up their own logistic channel. Changing lifestyle, customer preferences and rising real estate costs are driving the growth of hyperlocal delivery. Hyperlocal delivery services have a huge market potential in India. With a large number of players mushrooming in this space, the ones that deliver efficiently are more likely to succeed. Companies should diversify their clients and start delivering for multiple industry segments in the long run. This would require a company to “own-up” a location so that it becomes the partner-of-choice for that location. Success in this space would depend on managing the rider pool and ensuring that these resources are optimally utilised.
Merisis Transactions
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Deals this Quarter Voylla Raises $15 million from Peepul Capital Merisis Advisors is pleased to announce that its client, Voylla, a leading fashion jewellery brand has raised $15 million from Peepul Capital, a leading private equity fund managing a corpus of $700 million Jaipur-based Voylla Retail Pvt. Ltd, which owns and operates e-tailer Voylla.com, is an online portal that offers a wide range of designer jewellery and accessories for women, men, and kids The funds will be used for brand building, expansion of the distribution network, investments in technology and enhancement of manufacturing capacity The deal represents Merisis Advisors’ 8th transaction in 2015 Merisis Advisors acted as the sole advisor to Voylla Retail Pvt. Ltd for this transaction
On-Going Transactions Holiday Planner India’s only holiday planner which technologically enables users to Discover, Plan and Book their trips online on a single platform at once, is seeking to raise funds Food Logistics India’s leading a Food logistics company providing last mile delivery using technology to ensure operational execution is seamless Restaurant POS One of India’s leading technology back-bone software to restaurants, connecting them to the digital world creating a Food-tech Ecosystem, is seeking to raise funds Home Shopping One of India’s biggest Television shopping e-commerce company, is seeking to raise funds Fresh Juices A chain of retail outlets serving fresh, healthy, on the go juices, is seeking to raise funds
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Merisis Consumer Practice Selected Transactions Equity Syndication
Equity Syndication
M&A
USD 15 Mn
Undisclosed
USD 4 Mn
PE Investment By
Acquires
Series A Investment by
October 2015
January 2015
April 2012
About Merisis Merisis Advisors, a leading independent advisory company, helps growing companies raise capital from institutional investors as well as advises owners and funds exists from their investments and maximizes the value of their portfolio. Merisis Advisors focus areas are Technology, Consumers and Industrials and its experienced team provides deep domain expertise in these verticals as well as a strong commitment to client. With offices in Mumbai and Bangalore, Merisis Advisors helps its clients through the complex process of fund raise and M&A, and deliver on its promise of “Growth Simplified”. Merisis is the Indian representative of AICA, a global alliance of independent advisors with presence in 25 countries. For more information visit www.merisisadvisors.com
Sumir Verma
Fazal Ahad
Managing Director
Director
Email:
[email protected]
Email:
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Mobile: +91 99672 55500
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