AIM-listed India Hospitality Corp. (IHC), which has interests in leisure and hospitality businesses, has sold its airline catering business to Switzerland-based Gategroup Holding AG. The deal involves IHC selling a 74% stake in its wholly-owned airline catering company Skygourmet Catering Private Limited for $39 million in cash. IHC will continue have a 26% in Skygourmet and is also entitled to proceeds from land sale in Delhi.
Though IHC informed the deal implies an enterprise valuation of $92 million for Skygourmet, the remaining amount may have gone towards adjusting debt of the firm. The airline catering business of IHC had liabilities of $36.36 million as of March 2010, as per its annual report.
The deal comes on the backdrop of recent media reports that IHC is close to acquiring world’s largest noodle bar chain Wagamama for $400 million.
IHC, which acquired Skygourmet and restaurant chain Mars Restaurants from private equity firm Navis Capital and entrepreneur Sanjay Narang in 2007 for $110 million, has also entered into an agreement to sell its remaining stake in Skygourmet. Gategroup has the option to buy IHC's stake during various periods between 30 September 2011 to 30 November 2013 for $13.75 million plus 10% interest per annum from signing of the deal.
IHC has also put an option which kicks in from 30 November 2012 to sell its stake based on certain agreed multiples of EBITDA.
The airline catering unit of IHC reported revenues of $28.72 million in FY10 as against $25.64 million in FY09. But it reported an operating loss of $2.24 million in FY10 as compared to $2.19 million operating profit in FY09.
The Indian airline traffic has been increasing at an average of about 20%.
"India’s vibrant economy and its surging airline industry offer an excellent opportunity," said Gategroup CEO Guy Dubois. "The Skygourmet acquisition fits perfectly with our growth strategy and with our objective to add to shareholder value by increasing gategroup’s presence in emerging markets. We’re confident this addition will grow our top line and improve profit margins," he said.
"It is a win-win situation for both companies. This partnership with a category leader will combine Skygourmet’s leadership and knowledge of the Indian market with Gate Gourmet’s global best practices. We are confident the combination will create significant value for the shareholders and provide superior service to customers," said Ravi Deol, IHC Managing Director and Chief Executive Officer.
Skygourmet has a production capacity of more than 110,000 meals per day with catering facilities at all six of India’s major airports. It operates in Mumbai, Delhi, Bangalore, Chennai and Hyderabad and is in the process of constructing a new unit in Kolkata. In Pune, Skygourmet has a franchise arrangement.
Skygourmet has clients like Jet Airways and its subsidiary, JetLite; Kingfisher Airlines; and NACIL (Air India/Indian Airlines). Skygourmet was established in 2002 and employs approximately 2,600 people.
Gate Gourmet already has a unit in Goa, which it acquired in 2007. The company is listed on the Swiss SIX Exchange with revenues of $2.8 billion in 2009 with a profit of $53 million.