“Department of Industrial Policy & Promotion (DIPP)” for “simplification of Land Acquisition Act”, in India | ET Retail

The Department of Industrial Policy and Promotion (#DIPP) will pitch for simplification of the #LandAcquisitionAct to facilitate investment and manufacturing in the economy by doing away with the cumbersome rules and procedures in the legislation..

Commerce and industry minister Nirmala Sitharaman, will likely take the matter up with her rural development counterpart Gopinath Munde…DIPP will likely propose ” doing away with the social impact assessment process in the Act, which is a pre-requisite for public-private partnership (PPP) and private entities to acquire land”.

” Land Act in the present form has stalled industrial activity and suitable amendments are urgently needed to spur manufacturing in the economy…. There is no land acquisition taking place. We have taken up the matter with the minister,” said an official…

 

 

Act stipulates establishment of a state social impact assessment unit, the office of a commissioner, rehabilitation and resettlement, and a state-level monitoring committee by each state government. The Act has nearly brought acquiring land to a halt, impacting large projects hitting manufacturing growth, which contracted by 0.7% in 2013-14.

Besides, the commerce and industry ministry may also recommend empowering of district collectors of each state to authorise providing of up to 500 acres for small-scale industrial projects. Investment and infrastructure reforms are one of the 10 point agenda of Prime Minister Narendra Modi unveiled on Thursday… Rural development minister Gopinath Munde ruled out scrapping of the land acquisition act, however, called for a need to amend it….

Ms. Sitharaman has emphasised on bolstering manufacturing in the economy. Munde was recently reported as saying that the rules of the Act have made the implementation difficult. “There is no question of repealing the Act, as we supported it in Parliament; it is a good law. I have taken up the Act as my first issue with officials in this ministry… I must say I agree with the rates of compensation in the Act,” he said.

Any amendment the Act will need to go through the Parliament. The Act has made it mandatory to get the consent of at least 70% of the affected people for acquiring land for PPP projects and 80% for acquiring land for private companies.

DIPP secretary Amitabh Kant had said in his interview to ET last month that the law had to be redrafted and simplified keeping in mind that a fair price is paid to the farmer.

“We need to un-shackle controls. It provides for too many committees and too many approvals. It will be too time-consuming a process,” he had said..

The ” New Law provides compensation FOUR Times the Market-price for Rural-Land and up-to TWICE the value of Urban-land for acquiring for public works or industrial activities”…!!

“24 Hour Fitness Acquired” by “AEA Investors,Ontario Teachers’ Pension Plan & Fitness Capital Partners” | Business Wire

24 Hour Fitness USA, Inc. announced that AEA Investors, a leader in the #PrivateEquity industry ; Ontario Teachers’ Pension Plan, Canada’s largest single-profession pension plan – and one of the world’s largest ; and Fitness Capital Partners, a fund organized by Dean Bradley Osborne and Global Leisure Partners have completed their #Acquisition of the Company from Forstmann Little & Co…!!

24 Hour Fitness also announced that Mark Smith will join as Chief Executive Officer, and Frank Napolitano has been named President…!!

“ I’m honored and delighted to lead #24HourFitness – which has pioneered so many breakthroughs in the fitness industry – into the Next chapter of the Company’s success,” said Mark Smith. “I’d like to thank former owner Forstmann Little for its strategic guidance of 24 Hour Fitness through a period of solid growth, and former CEO Elizabeth Blair for her execution through the acquisition…

Our new owners are firmly committed to supporting a strong, sustainable future, and I look forward to working with “24 Hour Fitness” executives and team members whom I have come to know as a talented and intensely motivated team”….

Smith and his family will relocate from Australia, and he will take office in July. Until then, the Office of the CEO has been established and will report to the Board of Directors for 24 Hour Fitness….!!

How ever the Terms of the transaction were not disclosed….!!

“E-commerce Logistics firm “Delhivery” to raise up to Rs.175 crore”: “PE’s interest in Ancillary Service providers” | ET Retail

E-commerce Logistics services company ” Delhivery “ is in the final stages of negotiations to raise up to Rs 175 crore in fresh funding, a development that comes at a time when a number of India’s Top Private Equity funds are betting big on the country’s Digital-commerce sector….!!

The company has had discussions with a number of blue-chip private-equity firms, a list that also includes marquee growth-stage risk capital investor Warburg Pincus, and a deal is expected to be finalised by mid-June, according to sources with direct knowledge of the talks…

If successful, this will be Delhivery’s third round of equity funding….In September last year, it raised about Rs 35 crore from Nexus Venture Partners, having raised an undisclosed sum from Times Internet Ltd earlier in 2012….The existing venture capital backers are also expected to participate in the new round…

Warburg Pincus recently made the news when it led a Rs 550 crore round of funding in online and mobile classifieds company Quikr in March. Avendus Capital, a leading investment bank, has been given the mandate to structure the transaction. While Sahil Barua, co-founder of Delhivery, and Warburg Pincus refused to comment, emails sent to Avendus Capital did not elicit any response…!!

A potential transaction could value Delhivery at over Rs 500 crore. A number of India’s top private equity firms with a consumer #BusinessFocus but are yet to invest in E-commerce have highlighted their interest in investing in companies that provide services such as Payments, Logistics, #Reverse-Logistics, #Packaging and #SupplyChainManagement…

“We don’t have a preference for businesses that focus on core merchandising…We would rather look at Logistics and Payment-related businesses, which go right across the space,” said managing partner, Tata Capital Growth Fund (TCGF)…!!

The shift is largely driven by the relatively lower valuations and smaller amounts of capital required by #AncillaryServiceProviders, with average deal sizes of Rs 50 crore to Rs 150 crore…!!

“We will consider investments in E-commerce. We haven’t so far, because a number of those businesses are yet to mature to a point where we, as a late stage investor, are comfortable investing in them…

BillDesk, where we have invested, is a classic example of a company that has been a direct beneficiary of what’s happening in the broader consumer internet space,” said.. India head of global private equity firm TA Associates…!!

“Tekla India & RICS promote” Building Information Modeling “(BIM) Technology”, to “Engineering & Construction Markets”| Realty Plus

“Tekla India, a leader in bringing Building Information Modeling (BIM) software to the engineering and construction markets of India, today announces its strategic alliance with the Royal Institution of Chartered Surveyors (RICS) and the RICS school of Built Environment….” 

The main objective of this partnership is to build a critical-mass of  “Quality Talent Pool” and create better Employment Opportunities for Young professionals across the construction and infrastructure industry, in the region..!!

This collaboration will help reach out to the student and education community to educate them on BIM technology using Tekla Structures through the Real estate and Construction Management courses offered by RICS School of Built Environment in their campuses in India…

As a part of this 2 year course, the program will provide students with a firm foundation on Tekla Structures Building Information Modeling (BIM) software…. Tekla India as a strategic partner will also be part of RICS’s conferences and workshops through the year across the major metro cities of the country..

The construction industry is the second largest industry of the country. It makes a significant contribution to the national economy and provides employment to large number of people…!!

The use of various new technologies and deployment of project management strategies has made it possible to undertake projects of mega scale. In its path towards automation, the industry has to overcome a number of traditional and technical challenges. 

Hence, professional training opportunities in this field is a must as this will help them do their jobs better, while achieving greater accuracy, efficiency, and cost management”.
Nirmalya Chatterjee – COO & Business Director, Tekla India said, “We are very proud to announce this one of its kind industry-academic partnership with RICS India. Volume of construction and infrastructure is only increasing in India and use of BIM technology can lead to enormous gains for the industry. 

“Qualified BIM professionals are the need of the hour. It is thus important that we train the younger generation joining the construction & infrastructure industry in their nascent stage…

This tie-up is a step forward to benefiting the student community as well as providing the industry with a larger talent pool. We along with RICS ensure that the best of professional education is offered to aspiring students keen on joining this vibrant industry”…!!

Sachin Sandhir, Managing Director, RICS South Asia said, ” We are honored to be associated with Tekla as it will further enhance our education curriculum at the RICS School of Built environment by providing our students with expertise and knowledge to improve their skills and giving them an edge in an increasingly competitive market ” ….

With advancement in technology, a new era of automation in construction industry has rolled in which clearly shows a huge growth from the manual representations to the 3D modeling and digital level of engineering. The introduction of the newest version of Tekla’s BIM software has improved construction workflow efficiency by providing the means to better organize models, manage tasks and avoid structural clashes..

Construction is about collaboration. As BIM penetrates construction industry processes, architectural trends produce increasingly complex shapes, and buildings include more refined technology, information exchange becomes progressively more important…!!

While information management remains at the core of BIM, building today’s structures requires more information than ever before. The new professionals need to well equip with the latest developments and technologies in the rapidly growing sector..

Expect “more Mid-Market Divestitures in 2014” : “Strategic-sales OR Acquisitions for growth-momentum” | Chief Executive

The report, conducted in late 2013 and the THIRD such endeavor by RBS Citizens, surveyed 460 Executives, ” who are open to OR currently engaged in some sort of corporate development activity, including Mergers, Acquisitions and Raising-capital…”

With a sense of stability returning to the economy middle market companies remain open to buying or selling but are prioritizing opportunities to Re-invest in their existing operations..

“ Our latest survey indicates that the appetite for acquisitions and sales remains strong, but businesses are taking a more strategic, less urgent approach, which reflects a strengthening economy,” said Bob Rubino, EVP and head of corporate banking and capital markets for RBS Citizens.

“As more Middle -Market companies see Top-line growth, Owners are looking for Strategic-Sales or Acquisitions that can augment their Re-investment Strategy and help keep their Growth momentum going ..”

These findings mirror other reports that suggest that critical sectors of the U.S. economy such as healthcare, retail food and energy will see continued or renewed M&A activity in 2014, according to business leaders at CIT Group. .

The middle market is ripe for a more fruitful M&A environment in 2014, according to Thomson Reuters LPC. The persistent fog of economic and political uncertainty that has stymied investment is lifting, giving way to improved visibility for lenders, borrowers and private equity sponsors alike.

Increased Economic confidence, more certainty with respect to Fed tapering, and fewer concerns about future government budget stalemates are paving the way for greater willingness to buy, sell and invest in middle market companies…

If in recent quarters companies were primarily focused on cost savings, they are shifting their attention to strategic growth opportunities. There is an abundance of capital – in the hands of both debt and equity investors – waiting on the sidelines, which will help buoy M&A activity…

Key findings from this year’s RBS Citizens survey include :

Sellers are more interested in selling part of their business than the whole.

While interest in raising capital remains steady, companies are less likely to take on debt and are more likely to accumulate earnings, sell a business unit or divest significant assets to make investments.

Executives believe both this year and next will be a ” Buyer’s market”..!!

Nine of Ten survey respondents intend to engage a ” Friend in the deal ” – an outside partner – to provide guidance throughout the M&A process ; half of all buyers and 40% of sellers are considering partnering with a commercial bank…!!

In late 2013, RBS Citizens conducted a survey of 460 U.S.-based middle market business executives that are open to or currently engaged in some form of corporate development activity, including mergers, acquisitions, and raising capital in the New England, Mid-Atlantic and Mid-West regions. For the purposes of this survey, middle market businesses have annual revenues of between $5 million and $2 billion.

The Sellers’ Perspective :

  • Based on this year’s survey results, the proportion of current and potential sellers in the market remains unchanged since 2012, but their motivations and intentions have shifted.
  • Although just 6% of middle market executives are currently involved in a sale, more than one-third indicate they would be open to a deal if approached by a buyer with a strategic fit.
  • While sellers were willing to ‘sell it all’ a year ago, a partial sale – selling an operating asset or division – has become more appealing than selling off the entire organization.
  • Being undervalued and underpaid by acquiring firms remains sellers’ primary concern; partial sellers are increasingly concerned about meeting post-acquisition revenue targets.

The Buyers’ Perspective :

While fewer acquisitions were in process at the end of 2013 than in the year before, deals this year are expected to be ” Larger and more Strategic” :

  • Less urgency in the market has translated into fewer current deals in process in early 2014 and more potential buyers are ‘on the sidelines’: open to but not actively seeking buying opportunities.
  • Buyers are less reliant on M&A as a means of growing; their goals are now more likely to be expanding geographic reach, increasing production and product capabilities and accelerating organic growth.
  • Respondents plan to make fewer purchases in 2014 but expect to spend more on each; the majority of executives anticipate spending between $10 million and $25 million.

Given the complexity of an M&A transaction, from ensuring proper valuation to identifying the best strategic buyers OR acquisition targets, the process has become more labour-intensive.

Most companies  without an “experienced Internal-Team” are “relying on an Outside Advisor”…!!

  • Of organizations who intend to engage external support for their deal-related corporate development needs, commercial banks are the most popular choice, followed by investment banks and business brokers.
  • Nearly half (47%) of respondents rate commercial banks as ‘excellent’ in regards to their corporate development capabilities, compared to 35% for investment banks and 26% for both private equity and venture capital firms.
  • Valuation, financing, opportunity assessment and due diligence are the areas where these companies are looking for the most help.

 

“Time to Re-engage with Emerging Markets”, “Not Retreat from”| BCG

These are challenging times for Emerging Markets… China’s economy is expanding at the slowest pace in more than a decade, and Annual-Growth in once-booming nations like Brazil, Mexico, Russia, and South Africa has slowed to about 1.5 to 2.5 percent…While India, has fared well in-comparison to its peer BRICS nations…but is well-below its own Y-o-Y GDP no’s, since 2008…

Look around the developing world, and currencies are weakening, worries about asset bubbles and rising debt are mounting, and foreign direct investment has fallen sharply. This volatility leaves many companies wondering if they are over-exposed to the #RisksOfEmergingMarkets..

The challenges in emerging markets go beyond volatility. Fundamental, longer-term changes are transforming the competitive landscape. In most emerging markets, domestic companies with low-cost structures and intimate knowledge of local consumers are more aggressive and are quickly improving their operations… Competition for increasingly scarce talent is fiercer and is driving up labor costs. Such trends are hurting profits. In China, for example, the share of U.S. companies reporting that their operating margins were higher than the global average dropped from about 50 % to just over 30 % between 2010 and 2013, according to the American Chamber of Commerce in Shanghai..

Still its Where the Action Is :

But companies that plan to look for the exits or scale back in emerging markets should reconsider. The most fundamental trends remain promising. One is that emerging markets will remain an unmatched source of growth in most industries. Another is that hundreds of millions of households will continue to join the ranks of the middle class and affluent in the decade ahead..

Despite the discouraging headlines, Emerging Markets are more important today than ever before. Even with all the turbulence in 2013, these economies accounted for 68 percent of global growth… Although the overall pace has slowed, Oxford Economics projects that GDPs of emerging markets will grow 2.2 percentage points faster than those of developed economies over the next four years. Just in terms of infrastructure, demand for investment in emerging markets will total a stunning $25 trillion through 2025, according to some estimates.

The ” BiggestDriverOfGrowth will be Rising Incomes… The Boston Consulting Group projects that in Turkey, an additional 6 million households will enter the middle and affluent classes in the next five years. In Indonesia, we project that 68 million people—roughly equivalent to the entire population of the UK—will make a similar leap by 2020. Thirty-seven percent of Brazil’s 60 million households will belong to the middle and affluent classes by 2020, compared with 29 percent now, and will represent a $1.2 trillion market. In China and India, such households will represent $10 trillion in buying power. Companies will have to look beyond a country’s GDP and focus instead on the more significant factors that will generate growth: rising consumption by relevant segments of consumer markets, and signals that purchasing power is about to take off.

To win in emerging markets, executives will need to rethink their approaches. As many of these economies make the transition from super-high growth, tapping major new sources of revenue will become harder than in the past. Executives should adopt a more differentiated approach to emerging markets and market segments…Companies should build new capabilities, adjust their business models, and improve their execution..

We believe that the following are the Primary #CorporateChallenges :

Refining the Emerging-Market Footprint – Growth prospects, consumer behavior, and the local competitive environment differ widely from one emerging market to another, as well as among industries. Each company must define the most promising emerging-market priorities, taking into consideration its own unique context and starting point…!!

We offer ” TWO Specific Ideas” for how executives should Re-visit their Market Portfolios : First, they should think beyond the popular acronyms. In the past few years, attention has been focused on the so-called BRIC economies—Brazil, Russia, India, and China. More recently, there has been more talk about MINT (Mexico, Indonesia, Nigeria, and Turkey). Of course, no company with global aspirations can ignore China and India. But companies should also build positions in markets that may offer better opportunities in the short term. While many multinational companies still target Indonesia, for example, material opportunities are also opening in adjacent Southeast Asian economies such as Vietnam, a recharged Philippines, and the frontier market Myanmar. Africa is also drawing greater attention from multinationals. Hyundai, for example, has surpassed Toyota in the five African countries that account for 70 percent of new-auto sales: Algeria, Angola, Egypt, Morocco, and South Africa. Samsung, also of South Korea, has set two goals for 2015 : achieving $10 billion in African sales and training 10,000 African engineers and technicians in order to develop the capabilities it needs to succeed.

Second, executives should simplify their strategies in order to expand and compete. Rather than always approaching each country individually, for example, they should think in terms of clusters. The sheer challenge of understanding and winning in more than 100 emerging markets can be so intimidating that most executives dare not try. So they should develop strategies to address promising segments across a number of neighboring countries or consider regional sourcing strategies in order to achieve critical mass. In Southeast Asia, for example, one major automobile company is taking advantage of the region’s free-trade pact to manufacture diesel engines and steering columns in Thailand, transmissions in the Philippines, gasoline engines and parts in Indonesia, and engine control units and steering gears in Malaysia.

Winning Over More Demanding Consumers – Emerging-market consumers expect more from foreign brands than they used to. Even average consumers in the lower rungs of the middle class are quality conscious. They can no longer be consistently won over by Western or Japanese products whose features and functions have been stripped down in order to hit a certain price point.

One reason for this development is that the quality gap between foreign and domestic products is closing fast. China’s Haier, for example, has emerged as the world’s largest appliance maker, in part because of its obsession with quality, according to a recent article in the Economist. Haier began by establishing a reputation for high-quality products and service in China. When it expanded overseas, Haier first pushed into the U.S. and Europe—rather than into less competitive markets such as Southeast Asia and Africa—because it wanted to learn how to meet the demands of the world’s most sophisticated consumers. As a result, Haier’s revenues have increased fourfold since 2000, topping $26 billion in 2013.

Multi-nationals must also move beyond selling off-the-shelf products and services that are aimed at the top of the income pyramid in emerging markets. Yum! Brands’ famous success story in China, where it has averaged annual growth of about 30 percent, is based on a strategy of customizing its restaurant concepts to local tastes, from restaurant design to food choices.

Adapting to the Big Competitive Squeeze – A decade ago, many multinationals regarded their global peers as their main competitors. This orientation has fundamentally changed. Foreign companies in emerging markets are being squeezed by different kinds of players.

One major source of competition is what BCG refers to as “global challengers”—fast-growing, globally minded companies with roots in emerging markets that are on track to establish leadership positions and to fundamentally alter their industries. In fact, 124 of the global Fortune 500 companies for 2013 were headquartered in emerging markets—more than double the number in Fortune’s 2008 list. In a recent BCG survey of more than 150 multinational executives, 40 percent of the respondents said they regarded other multinationals from developed economies as their primary competitive threats in emerging markets. But a greater proportion—50 percent—saw multinationals based in emerging markets as their main threats.

A second major challenge comes from companies that we call “Local Dynamos”: smaller emerging-market companies that focus only on their domestic markets. Such companies are catching up in terms of performance and distribution. They also have developed an intimate understanding of local consumers and strong relationships with local governments. In Brazil, where Wal-Mart Stores and Carrefour are both investing aggressively, the regional supermarket chain Super Muffato is the market leader in interior cities in the country’s south and in cities with more than 300,000 residents in the state of Paraná. Its 40 stores are just as profitable as stores in bigger cities owned by major international chains. For such reasons, 78 % of the multinational executives in our survey said they regard domestically focused companies as principal threats in emerging markets. In other words, these local companies are viewed as more serious rivals than other multinationals or new global challengers.

Meeting the Higher Expectations of Local Partnerships – Multi-billion-dollar #CrossBorderMergers&Acquisitions in #EmergingMarkets, tend to grab headlines.

But the real payoff on the ground for foreign companies is less than satisfying and often is not far-reaching. Organic growth, however, is challenging. To succeed, companies will have to up their game both in M&A and in forming local partnerships. While the rationale for and approach to a partnership agenda must be thought through in detail and tailored to each company’s own context, the emerging-market landscape is already witnessing different approaches to partnering.

One challenge for executives is to address the higher expectations of local partners. Emerging-market joint ventures in many sectors were traditionally based on a simple pact: foreign companies provide access to technology, capital, and sophisticated management solutions while domestic partners provide market access, government relationships, and, in many cases, low-cost production.

But this relationship has become obsolete. Today, partnerships between foreign and emerging-market companies are on a more equal footing. Local partners may inject capital or contribute valuable technology. They may even insist on a global partnership. When a Japanese provider of hospital equipment recently approached three preferred local-partner candidates for the India market, each company requested not only to help build up the local business but also to be the partner for expansion into other overseas markets. Indian motorized-vehicle manufacturer Bajaj Auto formed an alliance with Japan’s Kawasaki to obtain technology support for new-product development and to address a wider range of markets at home and abroad.

Organizing for #GlobalSuccess :

If a company views emerging markets as important to its success, this must be reflected in its organization structure. We see four imperatives regarding organization in these markets..

A Seat at the Table – One critical element is the way in which the corporate center supports its overseas units. Frequently, companies marginalize their organizations in emerging markets, all but guaranteeing that they will underachieve. They do not have a proper seat at the table of decision making, corporate strategy, and product development and have insufficient access to capital and people. If these markets are to deliver a larger share of growth, they deserve a disproportionate share of attention and support. At the home-product and beauty-care-product direct-sales company Tupperware Brands, which generates more than half of its annual sales in emerging markets, CEO Rick Goings is on the road 70 percent of the time, much of it in developing nations. Members of Siemens’s board learn about important emerging markets by spending two days in a region meeting with customers, government officials, and other key stakeholders.

An Accelerator Mindset & Organization – Multinational companies must adapt their organizations so that they can better cope with the tremendous speed with which many emerging markets are developing. Fast decision-making and consistent execution are paramount to compete with what we call the “accelerator mindset” of many emerging-market companies, such as their relentless pursuit of growth. Copying organization and governance structures that are successful in home markets may put multinationals at an unnecessary disadvantage against their local peers.

True Market Immersion – The most important imperative relates to leadership and people. Upper management must be familiar with emerging markets, ideally through on-the-ground experience. Senior executives must also remain sufficiently exposed to key customers, distributors, partners, and government officials in these markets. Too often, a foreign company’s senior executives experience only new airports and five-star hotels, rather than the realities of living on the ground.

Talent as a Competitive Advantage – Typically, foreign companies are at a competitive dis-advantage when it comes to recruiting top local talent. Talent is increasingly scarce, and attrition is high. Two out of three Indonesians change their employer within the first three years, for example, and one out of three does so more than once. The annual attrition rate in India is close to 15 % .

This high turnover suggests that executives must re-double their efforts to attract, develop, and retain local talent…They should also work harder to build organizations for the long run in emerging markets. When filling management positions, they must move away from the traditional practice of “ Expatriate Stints”, in which a Manager from Headquarters is assigned to an Emerging Market for about THREE years… Instead, executives must invest in future local leaders…

They should expose top Emerging-Market Talent to Global Activities and get them excited about their future growth potential in a company where individuals can thrive independent of their nationality… Wherever possible, leaders should instill in their companies a global mindset, in which a diversity of backgrounds is understood to contribute to international success.

#SuccessInEmergingMarkets, has become “more challenging than it was in the past”… But there is “still plenty of opportunity for growth”—most likely more than Developed Economies can offer. Rather than #RetreatingFrom EmergingMarkets, it’s “time for Executives to Re-tool & Re-position their businesses for #SustainedSuccess….!!

“Flipkart & Myntra Merger Is a Done Deal” ; “Flipkart to Raise Another Round of Funding, before IPO” | M&A | NextBigWhat

” The great Indian E-commerce Wedding we’ve all been hearing about for long is done”….the Two companies have kept it under the wraps so far but according to our sources, the deal has been completed and integration between the two has begun…

Both Myntra & Flipkart will operate as separate brands. This was a major point of contention between the two companies as Myntra was keen on operating a separate brand. In between, acquisition talks had stalled due to this…Back in November 2013, before the deal talks were on, we’d written on why the two companies should explore synergies. The two companies danced for a while….And there was much speculation in the press..!!

We haven’t been able to confirm the deal size, but the cash and stock deal is expected to be over $250 mn in value. Flipkart is also out to raise another round of funding before it makes it big move to go for a public offering…

Married

In October 2013, Flipkart closed a $360 mn round of funding from investors including Dragoneer Investment Group, Morgan Stanley Investment Management, Sofina and Vulcan Capital and Tiger Global…Here are some of the details :

Common Investors + Margin Boost ?

Accel, a common investor in both Flipkart and Myntra, has been known to be a M&A friendly Investor. Take a look at the past:

  • Flipkart : LetsBuy
  • Myntra : Shersingh

For Flipkart, Apparel is the #NextBigWhat category to crack and the company has been trying to catch up with Myntra, which is a market leader in the category. Although apparel is a high margin business, the war between the Two would mean large discounts and paying a lot of money to Google.. for #SearchEngineMarketing, at the expense of investors..

Flipkart & Myntra : The Common Investors :

” Tiger Global, Accel Partners and Sofina are common investors in Flipkart and Myntra”….It would have ” cost them all a fortune if the Two had continued to battle it out while “Amazon” on one end and “Snapdeal” on the other” (Snapdeal recently raised $133.7 mn led by eBay)…..!!

And both Flipkart and Myntra are also notching up losses as their revenues go up..

” Myntra ” Revenues :

Myntra posted Rs 134 cr loss on a Top-line of Rs 212 cr for the year ending 31 March 2013…In the year before (2012), Myntra’s revenues were Rs 67 cr and losses were Rs 51 cr. Flipkart, on the other hand reported a loss of Rs 281.7 crore in the year ended March 2013, up from Rs 109.9 cr in the previous year.

Myntra closed a series F round in February 2014Table below shows how much each investor funneled into Myntra:

Investors

Total Amount Paid Incl. Premium

Tiger Global

Rs 31 Crore

IDG Ventures India

Rs 9 Crore

Accel Growth FII

Rs 9 Crore

PI Opportunities Fund – I

Rs 155 Crore

Sofina

Rs 99 Crore

Here’s a look at how sales and losses have grown at ” Myntra “.

    FY12 – FY13*

  FY11-FY12*

 

YoY Growth (%)

Sales & other income

Rs 2,124,917

Rs 671,614

216

Losses after Tax

Rs 1,347,626

Rs 512,631

162

* Indian Rupees in Thousand

Given that after Series F, there isn’t a lot of equity to play around with, “#Merger-withFlipkart is probably the only option” (there are very few other options for ” Myntra to explore a merger-synergy with”, now that ” eBay” is in bed with Snapdeal)..

Myntra Funding : Timeline:

  • February 2014 : $50 mn from Premji Invest,  Belgian Private equity firm Sofina and existing investors. At the time it was reportedly valued at $200 mn
  • February 2012 : $25 mn from Tiger Global, Accel Partners
  • November 2010 : $14 mn series B led by Accel Partners
  • November 2008 : $5 mn from NEA- IUV, IDG Ventures, Accel

This deal, we expect will happen at over $250 mn with Majority being Stock…Launched in 2007, by IIT alumni Mukesh Bansal, Ashutosh Lawania & Vineet Saxena, ” Myntra “ had started out as an online personalised merchandising solution to companies, before it revamped to its current model in 2011.

 

“Founder of UK Retailer, Sports Direct” in talks to “buy LA Fitness Gyms in UK” | by: Graham Ruddick | Telegraph,UK

“Sports Direct, UK ” could expand into the ” Gym / Fitness Club-chain industry” after opening talks to buy up to 33 gyms from LA Fitness, UK “….The talks represent another surprise move from the founder of the retailer, which has already bought stakes this year in “House of Fraser” and “Debenhams”..

Mr Ashley is in talks to acquire the leases on the LA Fitness gyms after the troubled company was forced to dispose of sites through a company voluntary agreement. It is unclear how Mr Ashley will brand the gyms but it is understood they will be operated by Sports Direct..

It is not unusual for a sports retailer to move into the Gym / Fitness Club-chain industry. Sports Direct’s rival JD Sports opened a gym in Hull earlier this year while Dave Whelan, the founder of JJB Sports, created DW Sports Fitness Clubs.

Sports Direct is likely to use its own sports-wear brands – such as Dunlop, boxing range Everlast, and fitness brand LA Gear – extensively throughout the new gyms.

 

LA Fitness runs 80 fitness clubs, including the 33 earmarked for sale…The company is owned by banks and its management team after being forced to restructure its finances in the face of fierce competition from traditional rivals such as Fitness First and up-and-coming budget chains such as The Gym Group..

Fitness First was rescued through a £550 mil debt-for-equity swap, which saw US hedge funds Oaktree Capital Management and Marathon Asset Management take control from BC Partners..

Fitness First is understood to have examined the LA Fitness leases that are up for sale but wants to focus on expanding in London. The majority of the 33 sites are outside the M25. They include clubs in Belfast, Birmingham and Manchester..

If Sports Direct secures the deal then it is likely to look for more gyms to acquire. Mr Ashley has offered landlords a guarantee on the lease from Sports Direct, offering security for property companies. Sports Direct declined to comment.

The move into gyms could open a new avenue of growth for Sports Direct. Revenues and profits have been increasingly rapidly in its high street stores following the demise of main rival JJB…Shares in Sports Direct stand at 768p, more than double its float price in 2007.

However, Mr Ashley, who also owns Newcastle United, has a tempestuous relationship with the City….Shares in the company have fallen from a record high of 922p, in April after Mr Ashley sold more than £200 mil, of his stake in the retailer..

The share sale came just days after Sports Direct was forced to shelve a £70 mil, bonus for its founder due to opposition from shareholders.

Dave Forsey, chief executive of Sports Direct, said the company was “extremely disappointed by investors blocking the share award and warned that it could lead to “further uncertainty in the future ”…The company is yet to make public its intentions for the minority interests in “Debenhams” and “House of Fraser”.

Michael Sharp, the chief executive of “Debenhams”, said last month that he is talking to “Sports Direct” about placing its sports brands in “Debenhams” department stores.

“Sport Direct” owns 11 % of “House of Fraser”, with Chinese conglomerate “Sanpower” holding the remaining 89% …!! 

“Assessment of Risks in Investment Decisions”: help Managers decide “Capital Project Best-Fit, Portfolio & Risk-Tolerance” | McKinsey

Never is the “Fear Factor” higher for Managers than “when they are making Strategic-Investment decisions on multi-billion-dollar capital projects”…

With such High-stakes, we’ve seen many managers prepare elaborate financial models to justify potential projects. But when it comes down to the final decision, especially when hard choices need to be made among multiple opportunities, they resort to less rigorous means—arbitrarily discounting estimates of expected returns, for example, or applying overly broad risk premiums.

There are more transparent ways to bring assessments of risk into investment decisions. In particular, we’ve found that some analytical tools commonly employed by oil and gas companies can be particularly useful for players in other capital-intensive industries, such as those investing in projects with long lead times or those investing in shorter-term projects that depend on the economic cycle… The result can be a more informed, data-driven discussion on a range of possible outcomes. Of course, even these tools are subject to assumptions that can be speculative. But the insights they provide still produce a more structured approach to making decisions and a better dialogue about the trade-offs.

Some of the tools that follow may be familiar to academics and even some practitioners. Many companies use a subset of them in an ad hoc fashion for particularly tricky decisions. The real power comes from using them systematically, however, leading to better decisions from a more informed starting point : a fact-based depiction of how much a company’s current performance is at risk; a consistent assessment of each project’s risks and returns; how those projects compare; and how current and potential projects can be best combined into a single portfolio….!!

Assess how much current performance is at risk :

Companies evaluating a “New ” Investment Project ” sometimes rush headlong into an assessment of risks and returns of the project alone without fully understanding the sources and magnitude of the risks they already face…This isn’t surprising, perhaps, since managers naturally feel they know their own business. However, it does undermine their ability to understand the potential results of a new investment. Even a first-class evaluation of a new project only goes so far if managers can’t compare it with the status-quo OR gauge the incremental risk impact…

Evaluate each project consistently :

Once managers have a clear understanding of the risks of their current portfolio of businesses, they can drill down on risks in their proposed projects and eliminate the need—and the temptation—to adjust net present value (NPV) or risk premiums arbitrarily…What’s needed is a more consistent approach to evaluating project economics and their risks, putting all potential projects on equal footing. an overview of standardized summary metrics for risk and return; and an explicit description of the sources of Risk (above Exhibit).

The project team specifies the basic economic-drivers of the project, but the central strategic-planning and risk departments prescribe consistent key assumptions, help to assess and challenge the risks identified, and generally ensure that the method underlying the analysis is robust.

This approach is pragmatic rather than mechanical. A corporate-finance purist might challenge the idea of a probability distribution of discounted cash flows and the extent to which a chosen discount rate accounts for the risk already, but in practice, simplicity and transparency win over. The project displayed in above Exhibit, is one where the economics are clearly worse than in the original baseline proposal; indeed, this project is only 25 percent likely to meet that baseline. Nevertheless, it has more than a 90 % chance of breaking-even. And even after taking into account the potential need for additional investment after risks materialize, the project has attractive returns…

Making this extra information about the distribution of outcomes available shifts the dialogue from the typical ”  Go/No-Go “ decision to a deeper discussion about how to mitigate risk. In this case, it is clearly worth exploring, for example, how to reduce the likelihood of over-runs in capital expenditures in order to shift the entire probability distribution to the right. This is likely considerably easier to achieve if started early.

Prioritize projects by Risk-adjusted Returns :

The reality in many industries, such as oil and gas, is that companies have a large number of medium-size projects, many of which are attractive on a stand-alone basis—but they have limited capital headroom to pursue them. It isn’t enough to evaluate each project independently; they must evaluate each relative to the others, too.

It’s not un-common for managers to rank projects based on some estimate of profitability OR ratio of  NPV to investment. But since the challenge is to figure out which projects are most likely to meet expectations and which might require much more scarce capital than initially anticipated, a better approach is to evaluate them based on a risk-adjusted ratio instead. At one multinational downstream-focused oil company, managers put this approach into practice by segmenting projects based on an assessment of risk-adjusted returns and then investing in new projects up to the limit imposed by the amount of capital available (below Exhibit). The first couple of iterations of this process generated howls of protest. Project proponents repeatedly argued that their pet projects were strategic priorities—and that they urgently needed to go ahead without waiting until the system fixed all the other projects’ numbers.

The arguments receded as managers implemented the process. Projects that clearly failed to meet their cost of capital—the lowest cut-off for Risk-Adjusted Returns—were speedily declined or sent back to the drawing board. Those that clearly met an elevated hurdle rate were fast-tracked without waiting for the annual prioritization process. Projects in the middle, which would meet their cost of capital but did not exceed the elevated hurdle rate, were rank ordered by their risk-adjusted returns. For these projects, adhoc discussion can shift the rank ordering slightly. But, more important, the exercise also quickly focuses attention on the handful of projects that require nuanced consideration. That allows managers to decide which ones they can move forward safely, taking into account their risk and the constraints of available capital…

Determine the Best Overall Portfolio :

The approach above works well for companies that seek to choose their investments from a large number of similar medium-size projects. But they may face opportunities quite different from their existing portfolio—or they must weigh and set project priorities for multiple strategies in different directions—sometimes even before they’ve identified specific projects. Usually this boils down to a choice between doubling down on the kinds of projects the company is already good at, even if doing so increases exposure to concentrated risk, and diversifying into an adjacent business. Managers at another Middle Eastern energy company, for example, had to decide whether to invest in more upstream projects, where they were currently focused, or further develop the company’s nascent downstream portfolio. Plotting the options in a risk-return graph allowed managers to visualize the trade-offs of different combinations of upstream and downstream portfolio moves…

In this case, doubling down on up-stream investments would have generated a portfolio with too much risk. Emphasizing the down-stream, with only a slight increase in up-stream activity, improved on the status-quo, but it left too much value on the table. Through the exercise, managers discovered that a moderate amount of commodity hedging to manage margin volatility would allow the company to combine a reduced upstream stake with a significant downstream one. The risks of the upstream and downstream investments were quite diversified—and thus the company was able to pursue a combined option with a more attractive risk-return profile than either option alone.

The power of the approach lies in nudging a strategic portfolio decision in a better direction rather than analytically outsourcing portfolio construction. Managers in this case made no attempt, for example, to calculate efficient frontiers over a complex universe of portfolio choices. Oil companies that have tried such efforts have often given up in frustration when their algorithms suggested portfolio moves that were theoretically precise but un-achievable in practice, given the likely response of counter-parties and other stakeholders…

Managing Risk (and Return) in capital-project and portfolio decisions will always be a challenge… But with an expanded set of tools, it is possible to focus risk-return decisions and enrich decision making, launching a dialogue about how to proactively manage those risks that matter most in a more timely fashion…

“Corporate-Governance Reform in India”: Gauging Impact on Investors | Aligning Listing, with Companies Act 2013 | CFA Institute

Approval of all material related-party transactions by independent share-holders (i.e., related parties have to abstain from voting) is standard in many markets around the world and considered a best practice. Now, listed companies in India will abide by this rule beginning in October 2014 as part of a slew of corporate governance reforms announced recently, by the Securities and Exchange Board of India (SEBI). Will these new measures bring much-needed relief to minority shareholders, or is it just old wine in a new bottle ??

SEBI consulted industry participants in January 2013 to revise and overhaul Clause 49 of the Equity Listing Agreement that deals with the corporate governance norms for listed companies in India….CFA Institute, in conjunction with the Indian Association of Investment Professionals (IAIP), officially responded to the consultation by highlighting our policies and global best practices. The recently revised SEBI norms are expected to enhance the corporate governance framework to reflect global best practices. The requirements in certain areas, including independent directors and related-party transactions, are more stringent than the new Companies Act 2013.

Some of the significant changes are discussed below : 

 

Aligning Listing Agreement with the Companies Act 2013 – Companies Act requirements on issuing a formal letter of appointment, performance evaluation, and conducting at least one separate meeting of the independent directors each year and providing suitable training to them are now included in the revised norms of SEBI. Independent directors are not entitled to any stock option, and companies must establish a whistle-blower mechanism and disclose it on their websites.

Restricting Number of Independent Directorships – Per Clause 49, the maximum number of boards a person can serve as independent director is seven, and three in cases of individuals also serving as a full-time director in any listed company. The Companies Act sets the maximum number of directorships at 20, of which not more than 10 can be public companies. There are no specific limits prescribed for independent directors in the Companies Act.

Although SEBI reforms seem to be moving in the right direction, these limits may initially pose challenges in sourcing qualified independent directors for listed companies.

Maximum Tenure of Independent Directors – Based on the Companies Act as well as the new Equity Listing Agreement, an independent director can serve a maximum of two consecutive terms of five years each (aggregate tenure of 10 years). These directors are eligible for reappointment after a cooling-off period of THREE years.

Can a director who has served two five-year terms be considered independent after a cooling period of three years ? CFA Institute recommends that board members limit their length of service on a specific company board to no more than 15 years to ensure new board members with fresh insights and ideas are elected.

Board-Mix Criteria Redefined – Per Clause 49 of the Equity Listing Agreement, 50% of the board should be made up of independent directors if the board chair is an executive director. Otherwise, one-third of the board should consist of independent directors. Additionally, the board of directors of a listed company should have at least one female director.

While it is a welcome change that SEBI mandates a female director, will it make a huge difference to the effectiveness of boards ?

CFA advocates that diversity should be embraced from all angles, such as diversity of backgrounds, expertise, and perspectives, including an increased investor focus to improve the likelihood that the board will act independently and in the best interest of shareholders.

Role of Audit Committee Enhanced – The SEBI reforms call for two-thirds of the members of the audit committee to be independent directors, with an independent director serving as the committee’s chairman. While the Companies Act requires the audit committee to be formed with a majority of independent directors, SEBI has gone a step further to improve the independence of the audit committee.

The role of the audit committee also has evolved to incorporate additional themes from the Companies Act, such as reviewing and monitoring auditor independence, approval of related-party transactions (RPTs), scrutiny of inter-corporate loans, valuations, and evaluations of internal financial controls and risk management systems.

More Stringent Rules for Related-Party Transactions – The scope of the definition of RPTs has been broadened to include elements of the Companies Act and accounting standards :

  • All RPTs require prior approval of the audit committee.
  • All material RPTs must require shareholder approval through special resolution, with related parties abstaining from voting.
  • The threshold for determining materiality has been defined as any transaction with a related party that exceeds 5% of the annual turnover or 20% of the net worth of the company based on the last audited financial statement of the company, whichever is higher.

Since SEBI Clause 49 requires shareholder approval for all material RPTs, with no exception for transactions in ordinary course of business or at arms-length, companies feel that this will result in practical difficulties (i.e., compliances costs and delays), particularly for those that regularly transact business with subsidiaries.

The ultimate effectiveness of such legislation will depend upon the degree and quality of enforcement, or the monitoring capabilities of the regulator.

Improved Disclosure Norms – In certain areas, SEBI resorts to disclosure as an enforcement tool. Listed companies are now required to disclose in their annual report granular details on director compensation (including stock options), directors’ performance evaluation metrics, and directors’ training. Independent directors’ formal letter of appointment/resignation, with their detailed profiles and the code of conduct of all board members, must now be disclosed on companies’ websites and to stock exchanges.

E-voting Mandatory for All Listed Companies – Until now, resolutions at shareholder meetings in listed Indian companies were usually passed by a show of hands (except for those that required postal ballot). This means votes were counted based on the physical presence of shareholders. SEBI also has changed Clause 35B of its Equity Listing Agreement to provide e-voting facility for all shareholder resolutions.

We think this is a pertinent change as it will allow minority shareholders to express their voices at shareholder meetings without having a physical presence. CFA Institute has advocated for company rules that ensure each share has one vote.

Enforcement – SEBI is setting up the infrastructure to assess compliance with Clause 49 to ensure effective enforcement. Companies need to buckle up and assess the impact of these reforms and step up compliance.

Industry Impact – I asked Navneet Munot, CFA, CIO of SBI Mutual Fund and advocacy director for IAIP, to gauge industry reactions. Mr. Munot was optimistic about SEBI boosting investor confidence through these sweeping changes, especially the potential to empower minority shareholders through e-voting, enhanced disclosures on remuneration that is aligned with global best practices, and by requiring independent share-owner approval for related-party transactions. Given India’s humongous need for risk capital, regulatory reforms and better enforcement are critical for market integrity and building investor trust, he said.

CFA Institute, along with the IAIP, is currently working on an investor’s guide to shareholder meetings in India to help retail and institutional investors understand the rights, role, and responsibilities of shareholders…