The RKHS-Sodexo deal breaks a myth - BMR Advisors
The RKHS-Sodexo deal breaks a myth - BMR Advisors The RKHS-Sodexo deal breaks a myth - BMR Advisors
Parikh: This was a different situation as far as the transaction was concerned because this was not a financial transaction in itself, Sodexo is a global leader in the industry in food services and facilities management and RKHS is a leader in India in the same business. So this was a transaction which was driven and guided very substantially by overall strategic considerations and in that kind of a context, the timing is less of an issue and many of the considerations that are otherwise applied to transactions become less in more strategic transactions. Q: Were there other people interested as well or was this an out-an-out negotiated transaction with Sodexo or were you talking to other players maybe not just in the food business but even private equity players or things like that Parikh: There were a number of different options that we were looking at over a period of time and this one happened to be something which met Mr Shete’s objectives and RKHS’s objectives and also Sodexo’s objectives. So in the end, this was the one arrangement which worked well. Q: Also comment on the price, it seems to add up to about little over one time revenue for the business that Mr Shete has sold now. I don’t think there are benchmark such deals anywhere else in India because we haven’t had a company like RKHS in India do a transaction like this, how does this compare globally Parikh: It is a fairly competitive valuation and we looked at a number of different metrics and I think that on the whole we think that the transaction was reasonably priced. We would of course have liked to have more but I think in fairness it was a good transaction. Q: Why didn’t you hold out maybe six-nine months down the line, you might have got even more Shete: We can always look back in hindsight and say this could have been possible or you could have got high valuations. Q: This is a particularly bad times for the global markets, valuations everywhere are at an all time low so weren’t you hopeful that maybe next year same time you would have got a better valuation Shete: That thought will always remain with me but I think what is most important for me was that the opportunity that is coming up on the food distribution logistics, supply chain end is substantial. We just have to understand that you don’t have unlimited resources and you have to align yourself at some point and I think this was not timed in a manner of speaking but I thought that it was the right time, it was fair, one could have always thought that you could have got something more but I think that was a consideration but that was not the only consideration. Q: I also understand that there are some reports that you are looking for financing for many months and couldn’t quite come upon the right terms for that financing, so is that what in a sense forced your hand to sell some part of your business and thereby raise money to finance the rest of your business where you seemed to think the future lies Shete: I think if you look at the options that are available, I think there are only three-four which see the private equity, its debt or it strategic or it is a combination of ‘either – or’. I think when you weigh all those options from a timing perspective or from a value perspective, one has to pick up the best options and this option that came along was probably the best suited from an RKHS’s standpoint and that is what helped you move forward and concluded. Q: You have about Rs 600 crore, much of that now gets invested in the remaining part of the business which is the supply chain business and maybe even the retail front-end, what have you decided to do with retail Shete: I think retail as a business was never our intent. I think we were kind of exploring that opportunity and retailing for a time to come is going to be very difficult in my opinion from a business model perspective. Our Locations: Bangalore +91 80 4032 0000 Mumbai +91 22 3021 7000 New Delhi +91 11 3081 5000 Chennai +91 44 4298 7000 Singapore +65 6408 8004 Bahrain +973 1364 6676 London +44 20 7849 6100 New York + 1 212 880 6499 Santa Clara +1 408 834 4699
Q: You are definitely exiting retail, so what do you do with this Rs 600 crore, are you looking at only organic growth for the supply chain business when it comes to food, are you also looking at maybe going out there and becoming a buyer yourself if there is anything to buy Shete: I think we will just focus on the wholesale supply chain distribution; logistics business is a huge opportunity in this country. I think we will be focused on what we know best which is food, services, logistics and be able to do something which is pioneering and at the same time gaining leadership in that particular area through better focus and resource allocations. Q: Is there any way to extrapolate this transaction to gauge a larger M&A mood in this country There are many experts who say that this is the best time ever for companies to consolidate, there are others who say that because of the valuation trick, many buyers are holding out for lower prices and sellers are holding out for higher prices, so does this deal mean that we can see many more promoters look to exit in difficult times like this so that they can maybe finance other parts of their business Parikh: I don’t know if an extrapolation is entirely appropriate; Mr. Shete’s circumstances were Mr. Shete’s and I don’t know that they apply equally for everyone. But I think that it is only a matter of time. I think the environment will become probably more conducive to more transaction certainly consolidations, strategic acquisitions and hopefully we will see more of that happening over a period of time. Our Locations: Bangalore +91 80 4032 0000 Mumbai +91 22 3021 7000 New Delhi +91 11 3081 5000 Chennai +91 44 4298 7000 Singapore +65 6408 8004 Bahrain +973 1364 6676 London +44 20 7849 6100 New York + 1 212 880 6499 Santa Clara +1 408 834 4699
Parikh: This was a different situation as far as the transaction was concerned because this was not a<br />
financial transaction in itself, <strong>Sodexo</strong> is a global leader in the industry in food services and facilities<br />
management and <strong>RKHS</strong> is a leader in India in the same business. So this was a transaction which was<br />
driven and guided very substantially by overall strategic considerations and in that kind of a context, the<br />
timing is less of an issue and many of the considerations that are otherwise applied to transactions become<br />
less in more strategic transactions.<br />
Q: Were there other people interested as well or was this an out-an-out negotiated transaction with<br />
<strong>Sodexo</strong> or were you talking to other players maybe not just in the food business but even private<br />
equity players or things like that<br />
Parikh: <strong>The</strong>re were a number of different options that we were looking at over a period of time and this one<br />
happened to be something which met Mr Shete’s objectives and <strong>RKHS</strong>’s objectives and also <strong>Sodexo</strong>’s<br />
objectives. So in the end, this was the one arrangement which worked well.<br />
Q: Also comment on the price, it seems to add up to about little over one time revenue for the<br />
business that Mr Shete has sold now. I don’t think there are benchmark such <strong>deal</strong>s anywhere else in<br />
India because we haven’t had a company like <strong>RKHS</strong> in India do a transaction like this, how does this<br />
compare globally<br />
Parikh: It is a fairly competitive valuation and we looked at a number of different metrics and I think that on<br />
the whole we think that the transaction was reasonably priced. We would of course have liked to have more<br />
but I think in fairness it was a good transaction.<br />
Q: Why didn’t you hold out maybe six-nine months down the line, you might have got even more<br />
Shete: We can always look back in hindsight and say this could have been possible or you could have got<br />
high valuations.<br />
Q: This is a particularly bad times for the global markets, valuations everywhere are at an all time<br />
low so weren’t you hopeful that maybe next year same time you would have got a better valuation<br />
Shete: That thought will always remain with me but I think what is most important for me was that the<br />
opportunity that is coming up on the food distribution logistics, supply chain end is substantial. We just have<br />
to understand that you don’t have unlimited resources and you have to align yourself at some point and I<br />
think this was not timed in a manner of speaking but I thought that it was the right time, it was fair, one could<br />
have always thought that you could have got something more but I think that was a consideration but that<br />
was not the only consideration.<br />
Q: I also understand that there are some reports that you are looking for financing for many months<br />
and couldn’t quite come upon the right terms for that financing, so is that what in a sense forced<br />
your hand to sell some part of your business and thereby raise money to finance the rest of your<br />
business where you seemed to think the future lies<br />
Shete: I think if you look at the options that are available, I think there are only three-four which see the<br />
private equity, its debt or it strategic or it is a combination of ‘either – or’. I think when you weigh all those<br />
options from a timing perspective or from a value perspective, one has to pick up the best options and this<br />
option that came along was probably the best suited from an <strong>RKHS</strong>’s standpoint and that is what helped you<br />
move forward and concluded.<br />
Q: You have about Rs 600 crore, much of that now gets invested in the remaining part of the<br />
business which is the supply chain business and maybe even the retail front-end, what have you<br />
decided to do with retail<br />
Shete: I think retail as a business was never our intent. I think we were kind of exploring that opportunity<br />
and retailing for a time to come is going to be very difficult in my opinion from a business model perspective.<br />
Our Locations:<br />
Bangalore<br />
+91 80 4032 0000<br />
Mumbai<br />
+91 22 3021 7000<br />
New Delhi<br />
+91 11 3081 5000<br />
Chennai<br />
+91 44 4298 7000<br />
Singapore<br />
+65 6408 8004<br />
Bahrain<br />
+973 1364 6676<br />
London<br />
+44 20 7849 6100<br />
New York<br />
+ 1 212 880 6499<br />
Santa Clara<br />
+1 408 834 4699
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