Domestic Mergers & Acquisitions

March, 2021
 Group Corporate Finance - CFG
Who we are CFG - Landmark Deals
Internal Investment Bankers/Financial Advisors
Century Cement JP Assets
to the Group ($[ ] Bn) ($[ ] Bn)

Binani Cement ETA Star

What we do ($[ ] Bn) ($[ ] Mn)

1. Help Group Companies through every step of

their growth
($[ ] Mn)
• Raising growth capital
• Re-financing
• Organic Growth (Investment Appraisals) Columbian Chemicals
($[ ] Mn)
• Inorganic Growth (M&A)
2. Value Unlocking – Restructuring & Divestment
3. Strategy
• Sector Analysis
• New Opportunities
• Ideation

2
 Why M&A & Divestments

Increase Market
Integration
Share

Geographical
3 4 Problem Solving
Expansion

2 5

Adjacent
Exit Non-Core
Products/ 1 6
Businesses
Technology

BUY vs. BUILD

3
 The M&A Journey
Completion
➢ Approvals
➢ Conditions Precedent
➢ Closing mechanics

Diligence
➢ Valuation Adjustments
➢ Identify Conditions Precedent Documentation
➢ Specific Indemnity ➢ Drafting of agreements
➢ Share Purchase / Business Transfer
➢ Representations and Warranties
➢ Indemnities

Preliminary Study Non-Binding Offer

➢ Acquisition Criteria ➢ Draft Valuation
➢ Target Evaluation ➢ Proposed Structuring
➢ Initial Term Sheet
➢ Initial Negotiations

Negotiations

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Types of M&A
 Types of M&A

Acquisitions Joint
Routes Venture

Share Merger/Demerger
Purchase

Business
Transfer

Group Restructuring could entail a mix of types of M&A

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 Share Purchase

Pre Post

Cash Novelis
Shareholders
Announced: Feb 07

4 months 100% subsidiary

Closing: May 07

• Acquired shares of Novelis for cash through overseas debt structure

• Global footprint, Downstream portfolio
• Novelis became a subsidiary of Hindalco and Board of Novelis was reconstituted
• Entire company including its business, fixed assets, working capital, debt, actual / contingent liabilities taken over by
Hindalco
• As most licenses, registrations continue with Novelis, lesser approvals for closing

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 Business Transfer (Slump Sale)
Pre Post

Cash
Announced:
Mar 16

UltraTech Jaypee 15 months UltraTech Jaypee

Closing
Jun 17
Cement
undertaking

• Acquired cement undertaking (identified assets and liabilities) of Jaypee through court scheme
• Market Share and New Markets (6 plants, 5 Grinding units in 5 states)
• Issue of debentures and preference shares by Ultratech (cash equivalent)
• Post closing, cement undertaking of Jaypee became a division of UltraTech and Jaypee continued as an entity
• Business related representations / warranties and indemnities sought
• As most licenses / approvals in name of Jaypee, significant approvals sought by UltraTech (including NCLT related approvals)

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 Merger
4.8%

42% 100% 26% 45%

Announced
Mar 17
17 months
Closing
Aug 18

• Merger of Vodafone India (unlisted) with Idea Cellular (listed)

• Largest telecom player in India, significant operational synergies, complementary customer base / reach
• Approvals: CCI, Shareholders, Creditors, SEBI, Stock Exchange, Sector Regulator
• Vodafone shareholders received Vodafone Idea (Merged Entity) shares as per swap ratio agreed at time of announcement
• All operations, assets and liabilities of both companies become part of Merged entity
• Promoters of each entity to enjoy Board representation, veto/other rights and provide indemnities for its respective entity
• As part of Composite scheme, AB Group acquired ~ 4.8% from Vodafone shareholders to reach 26%

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 Joint Venture

Announced 4 months Closing

Oct 15 Jan 16

Aditya Birla
Renewables

▪ AB Group and Abraaj entered into a joint venture to co-invest in solar projects
▪ Develop large scale solar platform, leverage capital and operational capabilities of both groups
▪ New JV Co with negotiated terms (board representation and other governance rights)
▪ Detailed JV agreement with rights, obligations, dispute resolution mechanism, project approval process, funding obligations
▪ No significant regulatory approvals required

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 Demerger
Pre Post
ABG: 42% ABG: 68% ABG: 59%
Announced
May 15
10 months
Closing
Feb 16

Demerger of
Madura Garments

• De-merger of Madura business undertaking from ABNL into PFRL (listed)

• Consolidate apparel retail business of AB Group in Pantaloons (renamed as ABFRL post demerger)
• Madura Business undertaking became a division of ABFRL
• ABNL Shareholders continued to hold shares of ABNL and received shares of ABFRL
• Resultant ABG Stake in ABFRL post demerger reduced from 68% to 59%
• All NCLT related approvals obtained. FDI concerns on small NRI / foreign investors of ABNL, given sector restrictions

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 Group Restructuring
Step 1: Merger of Nuvo & Grasim Step 2: Partial Demerger of ABCL

ABG: 57% ABG: 31% ABG: 40%

Announced
Aug 16
17 months
Closing
Aug 17
100% Grasim: 56%
ABG: 72%
Financial
Services
PI
Invest

• Complex two stage restructuring: merger of ABNL with Grasim and • PE investor in ABCL prior to listing also set benchmark valuation
partial demerger of ABCL from merged entity) • Significant regulatory approvals (FS business being highly
• Rationale for the restructuring included: regulated, FDI)
• Simplifying Group structure
• Access to high growth financial services to Grasim
• Unlocking value of Financial Services to shareholders
• Stronger parentage support to FS

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Key Terms & Timelines
 Key Financial M&A Terms
1

EBITDA

• Value of Asset
AGNOSTIC • Capital structure
• Age of Asset

2
Cash
Working Collection Purchases /
Capital RM Inventory

Debtors
# of Creditors
To receive cash: Debtors & Sale of Finished Goods days
minus To pay cash: Creditors & Wages / Exps

Sales Production
Finished
WC Cash Trapped WC Cash Release Goods

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 Key Financial M&A Terms
3
ENTERPRISE
VALUE

→ Value of Business → Value to its equity shareholders

Multiple Based EBITDA X Multiple = Enterprise Value

Particulars FY20A FY21E FY22E FY23E FY24E Terminal Value

OR EBITDA X X X X X
Less: Tax on EBIT X X X X X
Less: Change in WC X X X X X
DCF Based
Less: Capex X X X X X
FCFF X X X X X XX
Discounting@ WACC
Enterprise Value XX

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 Typical Timelines
▪ Broad info on TargetCo ▪ DD & Management Discussion ▪ Approvals
▪ Preliminary Discussion ▪ Negotiation on Valuation ▪ CPs and Standstill
▪ Negotiation on Adjustments ▪ Closing mechanics
preliminary valuation ▪ Binding term sheet

▪ Agreed valuation subject ▪ Agreements Negotiation on

to DD o CPs, R&W and
▪ Non-binding term sheet Indemnity
▪ 60 days exclusivity o Non-compete
o Transition Period
▪ Confirming Investor’s
Financial Capability

Non-binding
Preliminary Study Due Diligence Documentation Completion
offer

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SOKTAS India – A Case Study
 Grasim’s Textile Division - JST

VSF Chemicals Textiles Insulators

Jayashree
Textiles (JST)

JST – An Overview

▪ Although the world had seen much of linen by the 20th century, this incredible fabric was
first brought to India by Jaya Shree Textiles in 1949.
▪ Sourcing the raw fibers from Europe, Jaya Shree Textiles manufactured linen with the finest
European technology in India at Rishra, Kolkata
▪ Only integrated player in India with market leadership in Linen Yarn and pure linen fabric.
Recently entered in Apparel space with launch of Linen Club Apparel
▪ Linen business has a total turnover of ~INR [confidential] cr.
▪ Linen Club is the leading pure linen fabric brand in India and is retailed through 6000+
Retail counters and ~200 Exclusive Brand Outlets in India

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 JST Portfolio – Pre-Acquisition
Existing Businesses

Linen Yarn Linen (Pure) Fabrics Linen Apparel

▪ Leadership Position in the market ▪ Lower volumes higher margins ▪ Linen Club Studio – Predominantly
▪ JST Capacity – > [confidential] MT ▪ JST Capacity - ~[confidential] LM Shirts, Trousers

▪ OTC Distribution – [ ]+ MBOs, ~[ ] EBOs ▪ Launched ~3 years ago

▪ Market leader in OTC

▪ Lower share in Brand & Retail (B&R)

New Businesses

Intimate Blend Yarn Blended Fabrics Blended Apparel

▪ India’s first linen-rich intimate ▪ Introduced blended fabric in OTC & B&R ▪ Brand Cavallo by Linen Club –Shirts
blend yarn ▪ Low market share currently Only

▪ High volume lower margins ▪ Being sold online only

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 Linen Fabric Industry
Linen Fabric Market in India 1

Market Growth Rates based on Market Growth Rates based on Market Growth Rates based on
Business Estimates – Not for Business Estimates – Not for Business Estimates – Not for
External Use External Use External Use

• Linen fabric grew at a healthy rate at 10% with increased penetration of Linen in both Brands and Retail (‘B&R’) and Over the Counter (OTC).
• Domestic Pure Linen OTC volumes have stagnated over the last 3-4 years.
• With faster growth in branded / organized apparel & increased linen penetration, future growth expected to be dominated by B&R and Blends

Source: Business Estimate 20

 Linen Market – Challenges & Opportunities
▪ Domestic Pure Linen OTC volumes have stagnated over the last few years.
▪ Blends have led the overall consumption growth projected to grow continuously driven by the Brands & Retail (B&R) segment

Market Trends JST Constraint

Big shift towards Linen Blends driven by B&R Limited fabric capacity for future growth

Modern continuous processing Technology required to cater fast

Opportunity to expand blends in OTC segment growing B&R segment

Option 1 – Greenfield Process House Option 2 – Acquisition of Processing Facility

▪ Capex - Rs. [Confidential] Cr. including Land ▪ Shorter lead times

▪ Lead time – [Confidential] Years (and execution ▪ Established business & facilities
challenges) ▪ Opportunity of portfolio/geographic expansion

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Opportunity Assessment
 Build vs Buy Decision

Build Buy

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 Soktas India - Overview
Background of India operations
▪ 100% owned by Turkey-based Soktas Group
▪ Commissioned in 2009 in Kohlapur, Maharashtra
▪ Key Investors – Soktas Turkey and International
Finance Corporation (IFC) – an affiliate of World
Bank
▪ IFC exited in 2017
▪ Turkish Promoter was looking to exit India
. operations
 Needed cash for Turkish operations
 Had interests in other non-textile
businesses
Key Investment Highlights
▪ Strong Brands and 1000+ point-of sales
▪ Preferred supplier to leading premium cotton shirt brands
▪ Strong emphasis on designs for each seasonal collection, backed by a dedicated design centre
in Bangalore which was supported by design archive at Turkey
▪ Continuous Processing Technology – critical for serving the B&R segment
▪ Strategically located close to B&R market, long term land lease & surplus land for expansion
▪ Other highlights
 Brand usage rights (perpetuity) in India, Bangladesh, SE Asia and Mid-East
 State-of-the-art plant infrastructure/ERP
 Security of power and water
 Ready availability of skilled labour – textile weaving hub
Key Brands
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 Soktas – Market Positioning
Retail Price
(INR/Mtr)

>Rs. Super
[Confidential] Premium

[Confidential] %
Rs. [Confidential] Premium

Rs. [Confidential] Medium

[Confidential] %
Rs. [Confidential] Economy

<Rs.
[Confidential]
Low Local Brands
[Confidential] %

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 Transaction Process

[Confidential] [Confidential]

Non-Binding Detailed Due Binding Bid / Transaction

Agreements Closing
Bid / Offer Diligence Offer
Signing
[Confidential] [Confidential] [Confidential]

▪ Description of Acquirer ▪ Financial ▪ Final Purchase Price ▪ Share Purchase ▪ Satisfaction of CPs
▪ Transaction Structure ▪ Commercial ▪ Key Terms – List of Assets, Agreement  Regulatory
Valuation ▪ Legal technical assistance, ▪ Technology and  Lenders Consents
▪ Assumptions/Conditions ▪ HR [Confidential], Know-how  Key Stakeholder
▪ Financing Capability ▪ Technical [Confidential], etc. agreement Meetings
▪ Due Diligence ▪ Information Tech. ▪ List of definitive docs. ▪ [Confidential] ▪ Closing adjustments and
requirement ▪ Business as usual/Standstill ▪ [Confidential] finalization of Purchase
▪ Transaction timing ▪ Confirmatory DD Consideration
▪ Confidentiality, etc. ▪ Exclusivity, Confidentiality, ▪ Payment of Purchase
and Announcement Consideration
▪ Transaction cost, validity, ▪ Transfer of shares to
etc. Grasim

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 Summary of Valuation
Method EV Remarks

Rs. [Confidential]
DCF ▪ Implied EV/EBIDTA – [Confidential]
Cr.

IFC
Rs. [Confidential] ▪ Exit provided to IFC @ [Confidential] EV/EBITDA (last audited EBITDA
(Valuation benchmark for
Cr. considered)
Exit)

▪ EV/EBITDA Multiple (Average of Peers)

~INR 160-170 Cr.  1 Year: 7.4x
TRADING COMPARABLES (based on 3 year and 5
year average multiples)
 3 Year: 6.9x
 5 Year: 6.3x

Purchase Price (Rs. Cr.) ([Confidential]) ([Confidential]) ([Confidential])

Rs. [Confidential] IRR [Confidential]% [Confidential]% [Confidential]%

Based on Offer Price
Cr. [1] Payback Period (years) [Confidential] [Confidential] [Confidential]

EV/ EBITDA (FY 19LE) [Confidential] [Confidential] [Confidential]

*FY19LE EBITDA: Rs. [Confidential] Cr.

1. Represents maximum EV Grasim was willing to offer. Final Purchase EV, post negotiation, was INR 165 crores 27
 Post Acquisition Integration
Integration Objectives Key Decisions Before Integration
• Align Soktas to OneABG Turnaround Growth
Type of Synergy Strategic
• Preparing for take-over on completion of choices in
Fast Slow & Steady
Speed Integration
transaction

• Integration of different functions and Extent of Integration Entire Partial

departments
Start of Integration Immediate Deferred
• Focus on harnessing synergies identified during
the acquisition plan Integration Team Clean Joint
• Three Year rolling Business Plan (Product and
Change Management Implicit Explicit
Market Mix Optimization)

• Execution take-off of the Business Plan,

• Soktas Operations to continue AS IS basis
stabilisation and handholding
• Existing Team has been retained and integrated into the Aditya Birla Group
• Exchange of Know-How and Best Practices
• Know-how and best practices to be exchanged between Linen Business & Soktas India
• Identify Risks and Mitigation measures

Post merger integration is one of the primary reason for success or failure of an acquisition
Integration approach must be finalized with adequate planning, attention to detail and with contingency plans

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 Integration Approach
• Absorb Knowhow –Yarn Dyeing, Weaving & Processing
• Procurement (Yarn, Dyes, etc.)
• Supply Chain
• Asset Utilisation
Operations • Delinking with SOKTAS Turkey – Ex. IT,
• Streamlining with ABG Processes (HR, F&A, etc.)
• Benchmarking and Optimisation – JST vs SÖKTAŞ
• Leverage IT Capabilities

People

• Product Mix Optimisation

• Ring fencing of existing KMP Product & • Linen Growth Plan

• Org. Structure & Reporting Market • Distribution Synergies
• Leverage on Workforce Skill • Brand & Marketing Plan
• Requisite Training for Linen
• Phase wise harmonization with ABG
Policies

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 Key Takeaways
✓ Different contexts in which M&A could be a suitable strategy
✓ Typical M&A Journey and Timelines
✓ Types of M&A with examples
✓ Key Terms used in M&A
✓ Case Study – Acquisition of Soktas India
• Business rationale
• Investment highlights
• Transaction Process
• Summary of Valuation
• Integration Objectives and Approach

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Thank You

Questions?
ANNEXURES

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Objective
Transfer of
Consideration to
Status of acquisition in Buyer
Tax to Buyer
Tax to Target
Reps/Warranties & Indemnity
Typical Transaction document
Transaction Costs
Typical Approvals
Timelines for completion
Bank financing
Shares OR Business ??
Share Purchase / Sale Business Transfer / Slump Sale
Shares by shareholders Undertaking / Assets by Target Co.
Shareholders Target Co
Subsidiary of Buyer Division within Buyer
Less efficient Favourable
Business losses cannot be claimed Consideration allocated to tax depreciable assets
No tax for Target Co Capital gains for Target Co
Capital gains for Target Shareholders No tax for shareholders
Company wide R&W / Indemnity Undertaking related R&W / Indemnity
SPA BTA
Lower Higher
Stamp Duty on SPA Stamp duty on BTA plus transfer of fixed assets
Land Transfer
Change of control (CoC), CCI Licenses, Leases, Registrations, CoC, CCI
Upto 3 months Upto 6 months
Restrictive Available
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