Blackstone will buy 50.1% of the 70% ownership interest of the Hinduja family for $116 million. The Hindujas founded Gokaldas Exports in 1979 and have managed it since. The Blackstone agreement with the Hindujas constitutes a change in control under Indian rules and triggers an open offer to minority shareholders. Blackstone hopes to secure another 20% of the company's shares by offering minority shareholders the chance to exit at the same price as the Hindujas. The open offer outlay, assuming Blackstone is successful in mopping up the complete 20%, will be an additional $49 million.
On a per share basis, Blackstone is paying Rs275 ($6.72) a share, which represents a premium of around 25% to the price at which Gokaldas traded before news of the deal filtered into the market. With its investment, Blackstone gets the right to nominate three directors to the Gokaldas board.
The deal values 100% of Gokaldas, on an equity value basis, at $235.3 million. The Bangalore-based firm had revenues of Rs10.5 billion ($255 million) and profit of Rs703 million ($17 million) for the most recent financial year ending March 31, 2007. On this basis, Blackstone has paid a multiple of 0.93 times revenue and 14 times profit.
The Hinduja family will continue to manage Gokaldas and Blackstone does not anticipate any management changes, say sources close to the deal.
ôWe see this as a win-win for both Blackstone and the seller,ö says Devyani Khanvilkar, associate director of Kotak Investment Banking. Kotak advised on the sell-side and will also manage the open offer on behalf of Blackstone. ôIn the long-term, BlackstoneÆs investment will create value for Gokaldas, benefiting all involved.ö
The deal is structured by way of a secondary sell-down of the Hinduja holding to achieve the familyÆs objective of monetising part of their holding. The money will be deployed towards alternative investment avenues the family intend to pursue, says a source.
ôThe deal does not suggest the Hindujas will either distance themselves or opt out of managing Gokaldas,ö observes a banker. ôThe current management team has experience in running this business and Blackstone intends that they continue to do so.ö
As the textile industry becomes more global, manufacturing is shifting to lower-cost locations and Asia is at the forefront of this change. Gokaldas Exports is a well-established player in garment exports. It is one of IndiaÆs largest employers in the garment industry, employing around 54,000 people in 46 factories, giving it significant capability and capacity. One of the ways Blackstone is expected to add value to its investment is by introducing Gokaldas to buyers and manufacturers who are interested in outsourcing manufacturing to the Indian company.
Rajendra Hinduja, managing director of Gokaldas Exports reinforced the rationale behind the private equity sale in a written statement. ôWith BlackstoneÆs relationships across the world, our customer profile is likely to get a significant impetus. This is likely to take the company to a higher growth trajectory.ö
Gokaldas shares gained 10% to close at Rs253 on August 21. The broader market was volatile, gaining initially, then closing down about 3%.
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