Carlyle is competing with a consortium of Kedaara Capital and Partners Group to buy Vishal Mega Mart from current owners TPG and Shriram Group, said people with knowledge of the matter. Online retailer Flipkart is also said to be in the fray, said one of the persons, but this could not be independently verified.
Potential suitors, selected after an initial round of screening, are currently conducting due diligence. A deal will put the seal on the turnaround of a high-profile casualty in the retail sector. TPG had mandated Kotak Mahindra Bank last year to find a buyer for its seven-year-old investment.
Vishal Mega Mart says it’s India’s largest fashion-led hypermarket chain with 204 stores occupying 3 million square feet in 110 locations across India. It posted sales of Rs 3,000 crore in FY16. The sellers expect a valuation of about Rs 5,000 crore, valuing India’s sixth largest wholesale and value retailer at 20-25 times FY19 (EBITDA), said the people cited above.
Carlyle and TPG declined to comment. Kedaara, Partners and Flipkart did not respond to queries. “Vishal Retail is a classic turnaround case where the investors are looking at cashing in on the company after it successfully waded through choppy times,” said one of the investors looking at the company.
‘Local Partner Needed’
TPG teamed up with Chennai-based Shriram Group to buy the distressed company after it piled up loans, forcing founder Ram Chandra Agarwal to sell at the behest of lenders State Bank of India, HSBC, HDFC and ING Vyasa among others.
As Indian laws don’t allow foreign entities to enter into multi-brand retail, the company was split into two.
“The FDI (foreign direct investment) rules remain the biggest stumbling block even now. The foreign funds will have to look for a local partner or a fund like Kedaara, which is registered as an Alternative Investment Fund (AIF). Ideally, this should have been picked up by a local strategic investor but the valuation ask is very high,” said an executive directly involved in discussions.
Vishal Mega Mart is “positioned uniquely in the retail segment driven by its favourable product mix and target segment,” according to a Crisil report on the company. “High proportion of apparel and general merchandise provides healthy profitability, while the food and grocery segment attracts footfalls, thereby ensuring that the company’s exposure to competitive intensity is relatively lower as compared to other players in the retail segment.”
Retailers that have survived and thrived will draw investor interest. “For long PE investors have stayed away from multi-brand brick-and-mortar businesses,” said Sanjeev Krishan, executive director and head of private equity advisory services at PwC India. “Most of these have gone through operating upheavals and only a few have survived the e-onslaught. The ones which have managed to scale are likely to see investor attention.”
Sectoral revival
PE firms have thus far focussed on single-brand retailers. Kedaara invested in Kolkata-based Manyavar while TA Associates backed fashion brand W last year. Similarly, Lighthouse invested Rs 76 crore in V2 Retail to help speed up the company’s store expansion plans. Kedaara recently raised a second fund of $750 million.
