International BusinessIndian FMCG players again look for buys, in niche segments
Indian fast moving consumer goods (FMCG) players are once again on the prowl to acquire companies, as the economy picks up.
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Deal activity in the recession-proof FMCG sector was a bit subdued this calendar year, as well as last year. The number of reported transactions, according to research company Grant Thornton which tracks mergers and acquisitions, were 10 last year and nine this year, till November. In 2007, however, it was as high as 32.
Unlike their counterparts in the international arena who have gone for multi-billion dollar deals (for instance, Kraft’s and Nestle’s reported bid for Cadbury is over $16 billion), Indian FMCG companies appear to be targeting smaller transactions to fill gaps in their product portfolios or get a needed foothold in a new segment or a new market.
Consider Emami, reportedly in talks with Godrej Hershey’s for the latter’s beverage brands, Jumpin and XS. If it fructifies, the deal will give the Rs 755-crore skincare and healthcare major an entry into the beverage market, a new segment. Emami, among players such as Marico, Godrej Consumer Products Ltd (GCPL) and Wipro Consumer Care and Lighting, is also eyeing the Simple skincare brand in the UK. If that works out, it will give the company the much-needed foothold it is seeking in the UK market.
Other players, too, are seeking growth outside their traditional markets. So, most of them are keenly looking for brands on the block. “Typically, these brands may not be doing too well, or the promoter may be wanting to exit the business altogether,” explains Srividya C G, partner, specialist advisory services, at Grant Thornton.
In Simple’s case, the latter appears to be true, with its promoter, private equity player Duke Street Capital, wanting to offload the brand, valued at over Rs 1,900 crore, from its product portfolio. Simple is one of the largest skincare brands in the UK.
A meaningful presence overseas is something most FMCG players, especially the homegrown companies, have been eyeing keenly. Which is why offshore M&A is a more active area than onshore M&A, say analysts. “There is a fair bit of seriousness in that space,” says Jaibir Singh Sethi, analyst, consumer & retail, Noble Group.
Most homegrown FMCG companies have done some key acquisitions abroad in recent years. GCPL, for instance, wrapped up the acquisition of Keyline Brands in the UK a few years before for Rs 130 crore. Then, it went on to acquire Rapidol and Kinky in South Africa for Rs 50 crore and Rs 152 crore, respectively.
Marico, another aggressive acquirer, did a few buyouts in Egypt and Bangladesh. This included HairCode and Fiancee in Egypt, which together cost the company over Rs 100 crore to acquire. The Bangladesh acquisitions included two soap brands, Aromatic and Camellia, which together cost the company approximately Rs 50 crore.
“The company,” says Saugata Ghosh, chief executive officer, Marico, “has the Middle East, Africa and South Asian markets on its radar.”