Private equity deal goes sour in India

It looked like a done deal, but ActisÆ (erstwhile the UK's CDC) attempt to buy into one of IndiaÆs only remaining large confectionery players is called off at the final stage.
ActisÆ (erstwhile CDC, UK) deal to buy into one of IndiaÆs only remaining large domestic confectionery players, Nutrine was called off at the eleventh hour early this week underscoring once again how tenuous are the agreements reached with family-owned businesses in Asia. Actis had been in negotiations with the Reddys, the family that owns Nutrine, since the middle of 2005.

It had finalized a new management team led by ParryÆs Confectionery MD, NC Venugopal to run the business. The deal was widely presumed to be only the formality of final signing away from closure. However, a sudden volte face by the owners, speculated to have been caused by differences within the seller family on valuation, left Actis with no choice but to walk away.

ActisÆ success in wooing the Nutrine owners was seen as a coup of sorts. This would have represented the first MBIs (ômanagement buy inö) in IndiaÆs growing fast moving consumer goods ("FMCG") sector and one of only a few to have been consummated in the country.

At an estimated Rs2.75 billion ($62 million) the Nutrine deal was also touted as the largest FMCG deal in India in 2005. Actis, an ative player in India's private equity space, has closed two of the MBOs the country has witnessed, Punjab Tractors and ICIÆs nitro cellulose division. Actis has also invested in UTI Bank, HDFC, Jyothy Laboratories and others.

The more than 50 year old Nutrine (it was started in 1952) has been on the radar screen of strategic acquirers for over a decade since Nestle tried to forge an alliance with the company in the mid-nineties. After that the Murugappa group, then owners of ParryÆs Confectionery, had shown interest in Nutrine.

While exploring a foray into confectionery, UnileverÆs Indian subsidiary, Hindustan Lever had considered an investment in Nutrine. Most recently in 2003 closely held Mars (whose brands include Mars, Twix, M&Ms) made an overture to Nutrine which was rebuffed.

Other players in the confectionery market in India include Nestle, Cadbury, Perfetti, Lotte (in 2004 the Murugappas sold ParryÆs Confectionery to Lotte Korea). Nutrine registered a turnover around Rs2 billion in fiscal 2004-05.

It is attractive to acquirers and private equity investors alike because it is one of the only remaining domestic players with a large turnover, established brands and distribution and an estimated 25-30% market share in value terms in an otherwise fragmented market.

About one third of the market is still in the unorganized sector. Nutrine is also attractive because some of its brands eg the ôNutrine +clairö and ôMaha LactoÆ are individually more than $10 million brands.

The deal was perceived as sewn up to the extent that statistics compiled eg Grant ThorntonÆs Deal Tracker had included the Actis-Nutrine deal in the last quarter of calendar 2005. After investing more than nine months of effort (including identifying and persuading a new management team), this is an unfortunate end to ActisÆ efforts. At an industry level it draws attention, yet again, to the difficulties involved in closing private equity deals on the Indian subcontinent specifically and Asia in general.
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