India: Amazon is all set to buy the retail food and grocery food chain “More” of the Aditya Birla group in partnership with Samara Capital even though Goldman Sachs, the investment bank has opted out.
Kumar Managalam Birla’s retail chain Aditya Birla Retail Ltd is being acquired by the consortium of Amazon and Samara Capital at around INR 4100-4200 crore. The deal is supposed to be closed within the next 10 days. The acquisition of the retail chain is likely to clear out the whole debt in the ABRL’s books which is around INR 4000 crore as per March, 2018.
Amazon is going to have a 49% hold on the retail chain while Samara Capital is going to receive 51%. Since the back-end company has no restriction on FDI on which Samara and Amazon are investing there won’t be a problem i.e. once the acquisition is done ABRL will not require individual permissions from the state governments to operate the retail chain “More” stores. Samara Capital which has signed an exclusive agreement with ABRL group was in discussion with Goldman Sachs and Amazon regarding a consortium to acquire the retail chain till the late of August. Goldman Sachs had to opt out of the consortium since Amazon wanted a share of 49% which an only a little less than the permitted 51% in the multibrand retail FDI.
Amazon is not wanting any regulatory hurdles and thus is letting Samara Capital have the majority share of 51%.The investment by Samara in the backend will be through the route of Alternative Investment Fund (AIF). Since the Indians manage and sponsor the funds, the deal is being considered a domestic one as per law irrespective of the percentage the foreign corpus holds. Some business families from the America have also invested in Samara which is being used in this deal.
More is the fourth largest retail food chain in the country. Future group’s Big Bazaar comes at number one followed by Reliance Retail, and DMart. After the acquisition is done, Samara and Amazon plan to expand the More food chain rapidly which was till now at a halt due to the high ballooning debt. They want ABRL to set up around 100-150 stores every year major part of which would be neighborhood supermarkets and few hypermarkets. The current target for the fiscal year is 640 stores. Opening up of larger numbers of More stores will be a critical for the Omni-channel strategy of Amazon as it is intended to deepen and widen the brand’s foot print in food and grocery channel. The retail section of Amazon is called Amazon Prime Now and it is currently very limited and present only in few parts of Bangalore, Mumbai, the national capital region and Hyderabad. Samara and Amazon want ABRL to start generating profit from the year 2019-20 since according to reports the company’s EBITDA showed positive growth some four years back before it was burdened with debt.
According to BlueWeave Consulting, the market for retail industry is booming and is likely to grow at a significant rate in the forecast period. The acquisition of the Aditya Birla Retail Ltd chain by Amazon and Samara Capital is likely to have a positive effect on the retail chain. The acquisition is clearing ABRL of its debts and thus it is likely to grow in the coming years.