Sources close to the deal say terms of the sale were finally agreed on February 9 at a price of around $100 million. A formal announcement, including a stock exchange filing by Orkla, is expected by February 13.
The company is expected to register a turnover of Rs1.65 billion ($37.6 million) for fiscal 2006-07. This implies a forward price-to-turnover multiple based on the price of $100 million, of about 2.7. Industry sources say this represents an attractive exit price, especially because the company is in investment mode since it raised private equity. It started earning an operating profit only around 18 months ago.
MTR Foods was an early mover into packaged ready to eat foods, ready to cook ingredients and branded spices in India. It derives about 10% of its turnover from exports. The area has seen interest from a number of players with ITC, ConAgra, PriyaFoods and others also jostling for space.
In 2000, MTR Foods inducted Singapore-based private equity investor, Aquarius with a 20% stake. Subsequently, in 2002, JPMorgan Partners invested around $4 million for a 28% stake, suggesting an equity value at the time of $14.3 million. The issuance diluted Aquarius to around 14%. The equity infusions were deployed towards growing the packaged foods business. The balance equity is held by MTR Foods founder, Sadanand Maiya and other family members. Since MTR Foods appointed NM Rothschild in 2006 for advice on strategy, the market has been rife with takeover rumours.
The sale is driven by a number of factors, the obvious being that private equity was eager to realise a return on its investment. Indeed, there has been media speculation that JPMorgan Partners, in particular, forced the owner's hand as it was seeking to liquidate what was, for the private equity firm, a small-sized investment. Further, with MTR Foods taking time to achieve profits an IPO exit was not feasible at the current juncture. But sources close to the deal say this was only one of a slew of reasons.
MTR Foods needed to make substantial further investments in both financial and human capital to consolidate its position in an increasingly competitive market - players such as ITC for example have put considerable financial and distribution muscle behind the ITC Kitchens of India and Aashirvaad ranges. The market for packaged foods has shown a price sensitivity which had not been anticipated, making it a long-term haul for players. Finally, tapping the overseas market, including both non resident Indians and an increasing number of non-Indians, keen on easy to prepare Indian "curries", is crucial to future growth, a challenge for a small, pure-domestic player such as MTR.
A number of Indian corporates such as the Tatas, Britannia, ITC and Godrej and private equity firms including ICICI Ventures, Indivision and Actis were in the fray at the initial stages. But the insistence of both the MTR founder and its private equity investors that the price incorporate the substantial future potential in the packaged foods area proved a deterrent for them. Finally, in December, 2006 McCormickÆs was said to be leading the pack then negotiations on brand and trademark ownership are said to have proved a last minute hitch and Orkla emerged the final winner.
Orkla, one of the largest listed companies in Norway, is the leading supplier of branded consumer goods to the Nordic grocery market. Industry sources comment OrklaÆs interest in MTR is driven by plans to piggyback MTRÆs distribution network in India for its own products, overseas potential for MTRÆs range and the future opportunity for Orkla to outsource manufacturing to India with attendant cost savings. Bankers suggest Maiya and other senior managers could be retained by Orkla for the foreseeable future given the Norwegian company's lack of familiarity with the ethnic food ranges MTR sells.
Samir Kumar, executive director, Sino Hero Foods, which is the sole agent of MTR Foods in Hong Kong, China and Macau says: "The growth prospects of our business with MTR Foods are compelling, especially given the successful response to our recent launch in Park'N'Shop and Carrefour. We expect that the new owners share the vision the founders have of the product range, as we have been assured that senior management at MTR Foods will continue unchanged during a transition period. "
The MTR name is synonymous in India with the restaurant founded by the family, originally named Mavalli Tiffin Rooms, but widely known by the acronym MTR. The restaurant is a must visit for visitors to Bangalore; at peak hours chairs are laid outside to accommodate those who wait up to an hour for a table. A few years ago the ownership of the restaurant and the packaged food company was separated with Sadanand Maiya taking over MTR Foods and his cousin the restaurant. The intent was to leverage the goodwill and recipes the family had developed over a number of years in the business to the convenience foods arena. While fundamentally a sound proposition, this has obviously proven to be more challenging to achieve then anticipated by the owners or investors.
NM Rothschild advised MTR Foods on the sale.
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