Sumitomo Forestry to buy 26% stake in Spacewood for $14M

Japanese firm Sumitomo Forestry Co Ltd is acquiring a 26 per cent stake in Nagpur-based modular furniture maker Spacewood Furnishers Pvt Ltd, in a rare instance of foreign direct investment in India's highly fragmented furniture industry.

Although the deal amount was not disclosed, Spacewood co-founder Kirit Joshi told VCCircle the transaction is worth $13-14 million (around Rs 90 crore).

The alliance is aimed at building Spacewood into a full-line interiors products company in India and also to fuel growth of its existing modular furniture business, Spacewood said in a statement on Wednesday.

Under the deal, the partners will jointly set up a new factory in Nagpur, to be housed under Spacewood, with an investment of around Rs 30 crore to make pre-hung doors, said Joshi.

Besides, it would also invest around Rs 20 crore to increase its retail footprint to about 50 stores across the country. Currently, Spacewood has 15 company-owned stores offering modular kitchens, wardrobes, and home furniture.

“The home segment is dominated by carpenters. However, there is a major shift towards ready-made products,” Joshi said.

Founded in 1996 by Joshi and Vivek Deshpande, Spacewood makes a range of products including pre-laminated MDF boards, register stands, open counters, display cases, wood-tiered tables and book shelves. It also specialises in modular kitchens.

It has a factory in Nagpur and makes 100,000 kitchen cabinets, 30,000 bedroom sets and 50,000 workstations every year. It has its own stores and branch offices across India besides a presence in the Middle East and Africa. It employs about 670 people as of March 2015.

In the last financial year, Spacewood clocked around Rs 300 crore revenue, of which around Rs 250 crore was from the furniture segment.

In 2013, media firm Bennett Coleman & Co Ltd (BCCL) had acquired a 4 per cent stake in Spacewood Furnishers in an ad-for-equity deal through its arm Brand Capital (previously Private Treaties). With Sumitomo Forestry investing in Spacewood, BCCL's holding will get diluted to about 3.5 per cent.

Sumitomo, which is primarily into forestry, housing and timber and building materials, enters India's furniture industry with this deal. It will use Spacewood's supply chain network in India, including retail outlets and authorised dealers, to sell building and housing interior materials in India.

Sumitomo Forestry is one of the Japan's largest forestry corporations. It makes and sells a variety of homes, including custom-built wooden houses, and also manufactures value-added wood-based products. It owns 46,247 hectares of forest land in Japan and manages 200,000 hectares overseas.

KPMG Corporate Finance was the exclusive financial advisor and DSK legal was the legal counsel for Spacewood. Nomura Research Institute acted as lead financial advisor and Anderson Mori & Tomotsune and J. Sagar Associates were the legal counsels to Sumitomo Forestry.

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