Lotte scoops up Indian ice cream maker

Lotte Confectionery has agreed to buy ice cream maker Havmor in the biggest Korean acquisition to date of an Indian company. It could be the start of a big new M&A trend.

South Korea’s Lotte Confectionery said on Thursday that it will acquire Indian ice cream maker Havmor for Rp10.2 billion ($158 million), getting a bigger helping of the vast Indian consumer market and potentially blazing a new intra-regional trail of Asian M&A.

The confectionery arm of conglomerate Lotte Group whipped rivals including Nestle and Hindustan Unilever in its pursuit of Havmor, a privately-held, 73-year-old ice cream company that sells under its own brand and its Huber & Holly chain of dessert parlours.

And it may yet be ordering more from the Indian menu, if a news report that the Lotte Group might invest as much as $5 billion into India over the next five years is true, spearheading a new Korean push into South Asia.

Corporate South Korea has rarely gone in for Indian companies, with a mere $440 million invested in the past two decades, according to Dealogic. By comparison, corporate Japan has been much the busier; Daiichi Sankyo's ill-feted takeover of Ranbaxy Laboratories alone was worth $4.6 billion.

The Havmor acquisition, which is due to close on December 15, is already worth for more than a third of all previous South Korean corporate investment into India. It is also set to be the largest Korean acquisition of an Indian company to date, surpassing Korea Electric Power’s $96 million acquisition of India’s Pioneer Gas in 2012.

Synergies

Buying Havmor allows Lotte Confectionery to access a market with a population that is 26 times larger than South Korea's.

Taking over the 73-year-old ice cream company could also supplement Lotte’s existing confectionery offerings in India of branded candies, pastries, and coffee. Havmor sells premium ice cream through its Huber & Holly chain stores, which is in line with Lotte’s strategy of selling branded products.

For Havmor, the transaction presents a good opportunity for it to expand its offering in the highly-fragmented Indian ice cream market with the financial support of a Korean conglomerate. Havmor is a fast-growing ice cream company that runs a chain of 20 restaurants and 60 stores across 14 states, but it only has a 4% share of the entire Indian market.

However, it remains to be seen whether the deal will be a success given the relative lack of experience that South Korean firms have in India. Cultural and language differences between the two countries will be among the biggest obstacles.

The deal was struck at about 70 times Havmor’s net profit of $2.2 million for the fiscal year ended March 2017.

Gujarat-based Havmor has most of its businesses in northwestern India, including Ahmedabad, but has expressed interest to expand further north. It is currently in the process of upgrading its two facilities and expand its daily capacity by 40% to 350,000 litres.

The acquisition was announced less than a month after the Lotte spin off its confectionery business as an independent entity on October 30. 

Havmor was advised by KPMG, Veritas Legal, and Dhruva Tax Consultants, while Deloitte and Yulchon advised Lotte Confectionery.

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