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ChrysCapital, TA Associates seek to invest in Subway franchise platform


Mumbai: Private equity investor ChrysCapital and the US-based PE Fund TA Associates Management Lp are in separate discussions to invest in a proposed franchise platform of Subway restaurant chain in India, two people close to the development said. The discussions are at an advanced stage and the deal is likely to be closed by mid-February, said one of the people cited above.

About five operators of Subway’s Indian franchise – Subway Systems India Pvt. Ltd — plan to combine their businesses under a new platform and dilute about 30-35% stake in the new entity. The proposed fund infusion will be used for further expansion, said the first person on condition of anonymity, adding 30-35% equity could change hands for Rs200-250 crore. Boutique investment bank Lodha Capital Markets Ltd is advising the operators on PE fundraising.

Subway IP Inc., the privately held American fast food restaurant franchise, is owned and operated by Doctor’s Associates, Inc. With a presence in 44,600 franchised locations globally, it is the world’s largest single-brand restaurant chain. In India, it has presence across 70 cities.

Mails sent to spokespersons for ChrysCapital, TA Associates, Subway IP Inc went unanswered. A Lodha Capital spokesperson declined to comment.

“Our franchisees do work with banks and other financial institutions to seek finance and expand their footprint. We are excited that our franchisees are confident to reinvest and continue to grow our brand further. Currently, we have 590-plus restaurants operating in more than 70 Indian cities and hope to rapidly build on this number in the years ahead,” said Ranjit Talwar, country head, Subway India.

Top five Indian franchisees of global fast food chain Subway are combining their operations and bringing on board a private equity investor to speed up store expansion in Asia’s third largest economy, The Times of India reported in June last year.

Subway, one of the leading MNCs operating in Quick Service Restaurant (QSR) space, plans to have 2,000 stores by 2020. In India, Subway competes with other MNCs such as Dominos, KFC, McDonalds and Pizza Hut. Dominos is the largest foreign QSR in India with 1000 stores while Pizza Hut has 432 operating stores, KFC has 372 and McDonalds has 370, according to 2016 report by market research firm Cyber Media Research (CMR) Ltd.

According to the report on Indian food service industry, the size of the QSR industry in India was $2.3 billion in 2016 and will grow at an average annual rate of 16% to $4.88 billion by 2021. About 63% of the Indian QSR market is dominated by foreign QSRs while 37% market share is owned by domestic QSRs, the report said.

The Indian QSR space has been an attractive investment destination for private equity funds. It has seen deals such as investment by Singapore’s Temasek Holdings Pte Ltd in Devyani International (operator of KFC, Pizza Hut and Costa Coffee chains in India) in 2014, partnership of PE fund Everstone Capital with Burger King Corporation for Indian operations, and acquisition of franchise operations of Yum! India, (which runs Pizza Hut and KFC restaurants) by a consortium of investors led by Samara Capital and CX Partners LCC in 2015.

TA Associates, which has deployed $18 billion globally so far, has exposure towards QSR space with its investments in Hana Group, a French operator of in-store Asian cuisines and the US-based chain PepperJax Grill. In India, TA has invested in companies such TCNS Clothing designs which sells W, Aurelia and Wishful brands, BillDesk, an online payment gateway solution provider, Dr Lal PathLabs, Micromax Informatics Limited and RateGain IT Solutions Pvt. Ltd.

Besides foreign QSRs, Indian QSRs are also in market with fundraising plans. In May last year, Times of India had reported Indian food brand Haldiram’s held initial talks with top-tier private equity funds for a possible $200-million, or Rs 1,300-crore, financing round. Haldiram’s operates with 21 stores while Bikanervala has 55 operating stores, says the CMR report.

Source: Live Mint

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