Gautam Thapar-controlled Avantha Group has inked a deal to sell its entire 34.3 per cent stake in the consumer products business of engineering firm Crompton Greaves Ltd to a special purpose vehicle (SPV) created by PE firm Advent and Singapore government owned investment arm Temasek for Rs 2,000 crore ($316 million).
Advent is the lead investor in the SPV. The transaction is expected to be completed in the first quarter of 2016.
Under the consumer business, it manufactures products ranging from fans, light sources and luminaires, pumps and household appliances such as geysers, mixer grinders, toasters, irons and electric lanterns.
The business was spliced out and is in the process of being vertical demerged into Crompton Greaves Consumer Electricals Ltd which would be listed separately. The deal values the firm at Rs 5,820 crore ($923 million) on a pure equity basis. The enterprise value is pegged at Rs 6,600 crore ($1.07 billion).
It has grown at a compound rate of 16 per cent per year over the past six years and generated revenue of Rs 2,850 crore ($459 million) for the fiscal year ended March 31, 2014.
“As a standalone company, CGCEL would be able to pursue more strategic goals and thus maximize value for all its stakeholders,” said Laurent Demortier, CEO and managing director of Crompton Greaves.
It was part of the group's plans to create independent growth opportunities for its two large but significantly different businesses - power, industrial & automation which is a B2B business, and the consumer products business which is B2C.
Under the B2B side the company operates three business groups – power systems, industrial systems and consumer products, partly built through a series of acquisition beginning a decade ago.
Last November, Avantha Group had said it may sell a part of its stake in Crompton Greaves Consumer. At that the promoters held 42.7 per cent equity stake in Crompton Greaves. Given the vertical demerger plan of the consumer products unit, it was to own a similar stake in the demerged firm.
However, soon thereafter the promoters sold 8.3 per cent stake in Crompton Greaves for Rs 1,001.57 crore ($162 million). Part of this was bought by investment entities under Goldman Sachs and Merrill Lynch.
This left Avantha with 34.3 per cent stake in both Crompton Greaves and Crompton Greaves Consumer.
It's 34.3 per cent stake in Crompton Greaves, the most valued group firm, is worth Rs 3,716 crore.
Avantha Group also runs India’s largest paper company Ballarpur Industries, besides energy generation company Avantha Power. It also has several small and medium size companies in processed food, IT, chemicals, etc.
The group has been laden with debt and has been looking to sell assets to deleverage the balance sheet. It had also scooped up funding from Apollo Global and ICICI Venture's joint special situations fund AION some time back.
Avantha Group also sold one of its thermal power units under Avantha Power for an enterprise valuation of Rs 4,200 crore ($680 million).
Crompton Greaves owns 23.14 per cent stake in Avantha Power.
For Advent, this is the second control-oriented deal in India and the third overall since it started investing in India in 2007. It's first investment was in Computer Age Management Services (CAMS), a provider of business process outsourcing services to the asset management industry. This was acquired by the National Stock Exchange of India last year.
In 2012 it bought majority stake in Quality Care India Ltd, which runs CARE Hospitals chain in the country. The firm had set up its Mumbai office in 2009 and its local team also works with Advent’s existing global portfolio companies on growth strategies and acquisitions in the Indian market. These transactions include Skillsoft’s acquisition of e-learning business Element K and TransUnion’s acquisition of a controlling stake in credit information company CIBIL.
Although it doesn't immediately get a majority stake in Crompton Greaves Consumer, it would get joint management control over the firm.
For Temasek, this is the second such transaction after it bought Silicon Valley Bank's Indian venture debt arm. It's sister entity GIC, which is officially the sovereign fund of Singapore, has also just completed a control deal where it raised its holding in Mumbai IT park Nirlon Ltd. It bought additional stake through an open offer committing over $200 million to buy 63.92 per cent stake in Nirlon.
Advent and Temasek would make a joint open offer to buy additional shares of Crompton Greaves Consumer.
“CGCEL is an attractive business that we believe will thrive as a standalone company,” said Shweta Jalan, managing director at Advent International in Mumbai. “It has leading positions in several fast-growing product categories with strong brand names and extensive distribution capabilities. Post completion, we look forward to driving growth by investing in sales and marketing, distribution and enhanced product offerings,” she added.