M&A and retail industry perspective

For the retail industry as a whole, Indian companies hold a large appetite for mergers and acquisitions (M&A) among consumer products and retail companies. The Future Retail-HyperCity deal is a validation and more such deals will provide opportunities for consolidation which will add scale and efficiency, critical for the success of grocery retail. Moreover, companies are also looking for transformative deals to fundamentally alter their business strategy and disrupt the market.

The market size of food and grocery sector is around Rs 30 lakh crore, of which the organized share is just about 3%. The pace of change – from unorganized to organized — has now accelerated after the implementation of goods and services tax and there will be more consolidation in retail business.

Future Retail Ltd (FRL) is the flagship company of Future Group, India’s retail pioneer catering to the entire Indian consumption space, operate multiple retail formats in both the hypermarket, supermarket and home segments of the Indian consumer. Current market capitalisation of the company is around Rs 25,470 crore and its shares are listed on BSE and on NSE.

HyperCity Retail (India) Ltd is unlisted company and apart of K. Raheja Corp Group which holds 49% and balance 51% is held by Shopper Stop Ltd (Holding company), the listed entity. Company is mainly into Retail business and does not have any overseas presence, it has 19 operating stores as on the date and area under operation is around 1.24 mn sq. ft., reported turnover for the year ended March 2017 is Rs 1,155 crore and networth of the company stood at merely Rs 11.45 crores as on March 2017.

Past acquisitions of Future Retail

Future group has been expanding its brand presence and footprint through the acquisition of numerous small regional stores. In fact, five years ago Kishore Biyani had chalked out small format stores as the first of the five pillars of his group’s long-term retail strategy.

In November last year, Future Retail acquired the retail and allied businesses of Hyderabad-based Heritage Foods Ltd. Earlier it had acquired Delhi-based Big Apple and Easy Day chain from Bharti Enterprises. It had purchased Nilgiri’s, a south India-based chain, in November 2014. The group made its foray in e-commerce segment last year by taking over Rocket Internet-backed online furniture and home furnishings store FabFurnish.com in an all-cash deal.

In 2012, Futures group had acquired Big Apple stores from Delhi-based Express Retail for Rs 61 crore. Express Retail had 65 stores in the National Capital Region. The acquisition helped Futures Retail to ramp up revenue. Similarly, in 2014, Futures Retail acquired Nilgiris, a Bengaluru-based supermarket chain from private equity firm Actis for Rs 300 crore. The deal added 140 stores to Future Retail’s kitty. To further consolidate, Futures retail acquired Bharti Retail‘s Easy Day which had 200 stores in over 100 cities in north India.

Last year, Future Retail acquired the retail business of Heritage Foods in an all-stock deal. Through this deal, Future Retail got access to 124 stores located in Hyderabad, Chennai and Bangalore along with a few allied businesses.

So, Future Retail’s merger with Bharti Retail and Big Apple had consolidated the group’s presence in north India with over 250 stores and the company gained traction in south India through the acquisitions of Nilgiri’s and Heritage. By acquiring HyperCity, Future Retail can now consolidate its position in western states and also his hypermarket vertical. However, Kishore Biyani had to sell off the Pantaloons department store chain in 2012 to Aditya Birla Group due to cash crunch. These acquisitions have helped Future Retail to expand in markets and grow.

Transaction

  • On October 9, 2017, Future retail made an announcement of acquisition of HyperCity, total purchase consideration is around Rs 655 crore (approx) for acquisition of 100% equity shares capital and consideration will be discharged
    1. Partly by issue of equity shares subject to maximum and in aggregate of up to 93,10,987 equity shares of Rs 2 each, fully paid-up of FRL at a premium of Rs 535 per equity share aggregating to Rs 500 crore (approx.) to the equity shareholders of HyperCity on a proportionate basis.
    2. Partly by payment in cash up to an amount of Rs 155 crore (approx.)
  • Post-acquisition HyperCity will become wholly owned subsidiary of FRL.
  • As per there holding Shopper stop will receive Rs 334 crore (approx.) for their holding in HyperCity. Shoppers Stop will receive 47,56,823 shares of Rs2 each of FRL (i.e. 1 share of FRL for 16.22 share of HyperCity) and balance Rs 79.18 crore in cash.
  • HyperCity’s enterprise value, which includes debt and cash in hand, is Rs 911 crore.

Financials

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