India Hospitality Corp (IHC)has made its boldest bet by acquiring Adelie Food Holdings Ltd, a ready-to-eat food products supplier in the UK. IHC has snapped up Adelie from the private equity firm Duke Street Capital for a reported value of $350 million.
While the move catapults IHC into the big league of food products business, it also marks a shift in the company’s strategy as the bulk of its business, at least for the interim period, is now outside India.
News reports in The Economic Times and The Financial Times have quoted the IHC top management as saying that the twin objectives of the deal include building a global presence and also leveraging Adelie’s expertise in the ‘food-to-go’ category to attack the emerging Indian fast food market.
Currently, the demand for sandwiches, salads and other assorted ready-to-eat food products (which Adelie supplies in the UK) is met by a fragmented group of local vendors in India. With the rising income and expansion of smaller-format QSR chains and coffee shops, the demand for such products is only growing and IHC’s strategy to latch on to it is a timely initiative.
Its management also has the right pedigree. Ravi Deol, who took over as the CEO of the firm in December 2008, had earlier founded Barista (now owned by Lavazza), one of the first successful coffee chains in India.
Deol joined IHC along with Sandeep Vyas, another co-founder of Barista, who moved in as the COO. Vyas had also held several leadership positions in the consumer and hospitality space. Prior to IHC, he was the director of worldwide operations for Yum! Brands International’s Pizza Hut who led the re-entry of Yum! Brands’ KFC business in India.
The company, which has gone private last month and delisted from London’s AIM stock exchange, is largely owned by a group of key executives of the firm, including its former CEO and current chairman Jason Ader, CEO Ravi Deol and COO Sandeep Vyas. Before the delisting, these three held over 53 per cent stake in IHC. Other shareholders in the firm include Goldman Sachs, among others.
Ader is also the founder of New York-based investment management firm Hayground Cove Asset Management, which runs a few hedge funds, and was the sponsor of IHC when it floated as a blank cheque firm on the AIM over five years ago. Ader also owns other international investment firms.
Although details regarding how IHC is funding the latest deal are not yet available, one person privy to the development told VCCircle IHC raised fresh funds from a few financial investors. This was in addition to the cash raised from the sale of the Skygourmet business (more of that later).
Adelie: A Snapshot
Adelie was set up around six years ago by the UK-based PE firm Duke Street Capital (but on the Duke Street website, it does not figure among the past or present investments of the company) which focuses on leveraged buyouts and growth capital investments in mid-market firms in Western Europe. Duke Street has been following a platform play in food services with a string of acquisitions under Adelie, with reported deal value cumulating to around $200 million. Adelie, as a group, comprises Food Partners Group, Superior Food Ltd, Brambles Food Ltd and Buckingham Foods Ltd.
The Food Partners Group has a portfolio of over 1,000 chilled products, and manufactures and distributes two million sandwiches every week besides fresh salads, prepared fruit and vegetables to its institutional customers like coffee shops, supermarkets, convenience stores, forecourts and canteens. The company employs 2,100 people at five manufacturing sites across the UK and operates a fleet of 200 vehicles, making around 5,000 deliveries a day (7,000 for Adelie as a group). Superior Food and Brambles Food are part of the Food Partners Group.
Buckingham Foods is also into salads, sandwiches and chilled snacks, churning out products from its unit at Milton Keynes. It was one of the early acquisitions by Adelie.
Adelie had cumulative revenues of £230 million with operating profit of £3.3 million in 2009. Latest reports peg its revenues in the range of £220 million, which means the company has hit an air pocket in terms of growth.
This makes for an exit opportunity for Duke as it has found a buyer who is keen to replicate the success of the business and leverage its domain expertise in an emerging market.
What’s The Scope For IHC
Smaller-format F&B chains, such as coffee chains, are one of the prime movers of such ready-to-eat food products in India. Besides the existing local and international chains, there are new entrants in the space which will only expand the potential customer base of IHC when it launches its products in the country.
Earlier this year, Startbucks formally entered into a 50:50 JV with Tata Global Beverages, for opening and operating Starbucks Cafes in the country.
While the opportunity is huge, it is the execution which would be something to watch out for.
IHC had started as a blank cheque firm and listed on the London Stock Exchange’s junior market AIM in 2006, raising $103 million in the process. It built its business around airlines catering, hospitality and QSR chains, starting with the acquisition of and its sister concern Skygourmet Catering for approximately $110 million. This brought the hotel brand Gordon House besides restaurants under Not Just Jazz By The Bay, Tendulkar’s, All Stir Fry and Just Around The Corner.
IHC, however, faced the heat of economic slowdown in Indian aviation and hospitality industry. For the year ended March 31, 2011, it had reported revenues of $30 million, with a net loss of $60 million. Out of this, two-thirds of the revenues and three-fourth of the loss were from discontinued operations (Skygourmet). The company exited the airline catering business by selling 74 per cent to Gateway Group for around $39 million in cash in October 2010 and the balance 26 per cent, a few months ago.
This sale allowed it to resolve part of its liquidity issues as the air catering business was putting strain on IHC’s finances.
Last year, it also made a failed bid to acquire Wagamama, a UK-based firm operating a chain of pan-Asian cuisine restaurants in Europe and the USA. Wagamama was eventually acquired by Duke Street Capital, which has now sold Adelie to IHC.
For the six months ended September 2011, IHC had total revenues of $4.75 million, with a net loss of $1.85 million. As of September 2011, its total assets cumulated to $52 million, with cash and cash equivalent of $1.9 million.
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