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Food services sector back on private equity radar

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Private equity interest in the Indian restaurant and quick service restaurant sector is showing signs of revival after a two-year lull

MUMBAI: Private equity interest in the Indian restaurant and quick service restaurant (QSR) sector is showing signs of revival after a two-year lull, four PE and M&A (merger and acquisition) deals concluded in December indicate.

In the top deal, L Catterton Asia, the investment arm of French luxury goods conglomerate LVMH, acquired a controlling stake in Impresario Entertainment & Hospitality, which owns fine dining restaurant brands Smoke House Deli and Social.

The deal values restaurateur Riyaaz Amlani’s Impresario at Rs400-450 crore, two people familiar with the development said on the condition of anonymity.

“There has been a surge of good news in the restaurant industry over the past 12 months or so,” said Siddharth Bafna, partner and head of corporate finance at Lodha and Co., a Mumbai-based boutique investment bank.

Same store sales growth has gone up significantly for QSRs and CDRs (Casual Dining Restaurants) alike, overall profitability has improved, and stock prices of the listed F&B players have outperformed the Nifty by a mile, Bafna added.

Besides Impresario, Massive Restaurants Pvt. Ltd, owned by celebrity food writer and chef Jiggs Kalra and his son Zorawar, raised about Rs100 crore this month from private equity fund Gaja Capital to fund expansion.

In this deal, along with the promoter, existing investor Everstone Capital diluted its minority stake.

Massive Restaurants, founded in 2012 by Zorawar Kalra, in partnership with the Mirah Group—owner of Rajdhani Thali and QSR chain Falafels—operates five premium fine-dining restaurants: Masala Library, Made in Punjab, Farzi Café, Pa Pa Ya and MasalaBar.

“Massive is our play on the premium F&B space where we have chosen to be on the front end and we believe premium F&B has now come of age as a scalable opportunity,” said Gopal Jain, managing partner at Gaja Capital.

“The difference between now and 10 years ago is the emergence of a new consuming class of Millennials who consume more aggressively and eat out of both habit and need. Over the coming years we see premium dining expand to multiple non-metro towns across India,” Jain added.

In the F&B space, Gaja has also invested in Bakers Circle, producer and supplier of frozen bakery/dessert products to major quick service restaurant chains including Subway, Domino’s, KFC and Pizza Hut.

“Unlisted players like Massive Restaurants, Impresario, Barbeque Nation, Olive and many others have grown substantially and profitably. If we look at some of the recent deal activity, each of the companies (Impresario, Massive Restaurants, Olive) has created value for its investors and stood the test of time under the leadership of solid entrepreneurs,” Bafna added.

Although a distress sale, JSM Corp. Pvt. Ltd, which runs Hard Rock Café and California Pizza Kitchen in India, has managed to find a buyer for its assets. In the third week of December, Jitendra Virwani, owner of Bengaluru-based real estate conglomerate Embassy Group, said he would acquire a controlling stake in JSM from one of the promoters and existing private equity investor PremjiInvest.

Mumbai-based JSM Corp.’s founders are Jay Singh and Sanjay Mahtani, who together hold a 55% stake. PremjiInvest, the private equity arm of billionaire Azim Premji’s family, holds 22%, while the remaining 23% is held by other investors. JSM, founded in 2004, also operates frozen dessert chain Pinkberry in India and restaurants such as Shiro, The Big Kahuna, street-food inspired restaurant Plus91, casual-dining restaurant Ginger Tiger and Asilo, a rooftop bar in Mumbai.

India’s food services industry will be worth Rs4.98 trillion by 2021, according to a report by the National Restaurant Association of India (NRAI), released last year.

The size of the total market, both organized and unorganized, was Rs3.09 trillion in 2016 and NRAI’s estimates take into account a 10% compound annual growth rate.

According to the industry lobby group, the restaurant sector is expected to contribute about 2.1% to the country’s total gross domestic product (GDP) by 2021.

On Wednesday, Rabo Equity Advisors bought about a 40% stake in Olive Bar and Kitchen Pvt. Ltd from existing investor—Aditya Birla Private Equity, for a consideration of Rs100 crore.

“Aditya Birla Private Equity (ABPE) sold its entire investment in Olive recently to another PE fund, realizing a 2.3x on the original investment and this was on the back of an excellent five fold increase in the company’s turnover and the launch of many new successful formats,” an ABPE spokesperson said.

Olive Bar & Kitchen, which launched the first Olive Bar & Kitchen in Mumbai in 2000, owns 10 brands, ranging from fine dining restaurants to pubs, including Olive Bistro, SodaBottleOpenerWala, The Local, The Moving Kitchen, The Fatty Bao and Monkey Bar.

“The spate of healthy exits by PE funds in recent weeks, with some more to come in the near future, is likely to encourage more investments in this space,” said Bafna.

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