Tata Capital Growth Fund, one of the five private equity funds managed by Tata Capital, has joined Japan's Igarashi Electric Works Ltd and boutique local investment bank MAPE Advisory Group to buy out privately held auto parts maker Agile Electric Sub Assembly Pvt Ltd from Blackstone.
Tata Capital Growth Fund along with an offshore fund managed by it put in $37 million as part of the $106 million deal. MAPE and its own investors brought in around $9.4 million and the rest came from Igarashi. This would give a significant minority stake to Tata Capital Growth Fund.
Akhil Awasthi, managing partner, Tata Capital Growth Fund I, said: “Agile, with proven engineering expertise and innovation, is well poised to capitalize on the growing trend of manufacturing in India. With support of the Igarashi Group and its global tier I relationships Agile should scale greater heights.”
This marks another unusual deal where an Indian PE firm has joined a multinational company in an India related expansion or in-bound acquisition. Earlier, Burger King partnered Everstone to enter India; Germany's Payback partnered Peepul Capital to acquire loyalty management solutions provider i-Mint in 2010; India Value Fund Advisors (IVFA) brought in Japan's Toshiba as an equity partner in UEM India, which provides turnkey services in the water and wastewater collection, treatment and disposal.
Since MNCs typically intends to control the management of their subsidiaries, such deals tend to involve a buy-back clause to give exit to the PE firm in the future. Terms of the deal involving Tata Capital Growth Fund and Igarashi were not disclosed, but it is also expected to involve a buy-back of the stake by the Japanese firm.
The transaction marks a culmination of the deal announced in January. Blackstone had inked a deal to sell its entire stake in Agile Electric to Igarashi Electric Works and MAPE for $106.4 million (Rs 655 crore then). This came just one-and-a-half years after it acquired the firm and backed the management buyout of its public listed subsidiary Igarashi Motors.
The PE firm had picked 97.9 per cent stake in Agile Electric, which is engaged in the production of DC motor sub-assemblies, from existing investors HBL Power Systems besides individual shareholders KK Nohria, Padmanaban Mukund and Jose Joseph, for Rs 332.36 crore ($55 million) in August 2013.
Agile Electric held 62.8 per cent of public listed auto component firm Igarashi Motors and the transaction triggered an open offer. In a parallel move in the two-tier deal, Igarashi Motors’ managing director and one of the shareholders of Agile Electric, Padmanaban Mukund subscribed to optionally convertible debentures which later gave him around 32 per cent of Igarashi Motors for around Rs 60 crore.
They had later made an open offer which did not garner much and together they hold 74.5 per cent stake. Out of this 41.92 per cent is with Agile Electric and the rest 32.6 per cent is with Mukund. Igarashi separately owns 11 per cent stake in the listed firm and now directly and indirectly owns around 53 per cent stake in the company.
The deal was also unusual as a boutique investment bank came in as a co-promoter of the listed firm.
“Igarashi Electric Works is an old client of ours and they desperately wanted to come back; so we thought let's work it out together,” Jacob Mathew, managing director at MAPE Advisory Group, had told VCCircle earlier.
It is learnt that Igarashi and MAPE were looking to rope in a PE partner for the deal as they wanted to raise around $40-50 million from third party investors to strike the acquisition. This led them to speak to Tata Capital Growth Fund.
Igarashi Motors was set up as a JV around two decades ago between Japan's Igarashi and Crompton Greaves. Later Crompton Greaves exited. Igarashi too sold its stake in the public listed firm in 2010-11 to HBL Group and its group firm Agile Electric. It had sold shares at around Rs 60-70 a share and when it announced the deal it was buying it back at a valuation of six times that level. Notably, MAPE was its advisor when it sold out its stake in the Indian arm.
The share price of listed arm Igarashi Motors has doubled since the deal was announced early this year.
This deal would bring the Japanese firm back in action in the country. Since it sold the firm, Igarashi Motors' revenue has more than doubled while its net profit has climbed almost 17 times. Igarashi Motors' ended FY15 with net sales of Rs 385 crore and net profit of Rs 48.95 crore.
This transaction had triggered an open offer to the public shareholders of Igarashi Motors India as it breached the 26 per cent stake threshold. The open offer is yet to be completed but given the rise in share price has become virtually redundant.
Igarashi Motors' scrip rose 0.95 per cent to close at Rs 665.5 a share on BSE in a strong Mumbai market on Thursday.
For Blackstone, this would be the fourth significant exit from an Indian portfolio firm after Intelenet Global in 2010-11, Emcure Pharma in 2013 and CMS Info Systems this year.
While Intelenet was through a strategic sale, Emcure was through a secondary PE deal where Bain bought it out. Earlier, Blackstone was eyeing an IPO-led exit from Emcure.
It also sold CMS Info Systems to Baring Asia Private Equity.
Last year Blackstone made part exit from its underwater investment in Gokaldas Exports. It has also sought an IPO for portfolio firm Gateway Rail Freight and is looking at selling stake in two other IPO-bound firms: S H Kelkar and Nuziveedu Seeds.