Chanchani, The Economic Times
Bengaluru, 20 October 2016
Online baby products seller FirstCry is acquiring
offline retailer Mahindra BabyOye for Rs 362.1 crore in a primarily
stock deal, a development that signals how building an offline presence
is becoming important for vertical etailers.
Founded by serial entrepreneur Supam Maheshwari, First-Cry will acquire
the unit of $18 billion software-to-automobiles congolmerate Mahindra
& Mahindra, which in turn will invest in the Pune-based
FirstCry has now been valued at $300-350 million (Rs 2,000-2,330
crore), according to two sources familiar with the matter. The deal
will nearly double its valuation from about $155-160 million last year.
Mahindra’s will get a minority stake in FirstCry as part of the
transaction. FirstCry owner Brainbees Solutions will issue shares worth
Rs 354.6 crore to Mahindra Group and pay Rs 7.5 crore in cash,
according to filings made with stock exchanges.
As a part of the transaction, First-Cry has also raised Rs 226 crore
($34 million) in fresh funding from Mahindra, Switzerland’s asset
management company Adveq and Infosys cofounder Kris Gopalakrishnan,
besides existing backers like SAIF Partners, IDG Ventures India, NEA,
Valiant Capital and Vertex.
The deal will help FirstCry create one of the largest omnichannel
distribution plays in India with nearly 300 stores across 125 cities in
the country. The company had earlier said that it planned to open 700
franchisee stores in the next 3-4 years and the Mahindra brand will
help it build more trust in the market.
“With this transaction, our true omni-channel potential will evolve as
we will have a significant network to take the orders online and get
them delivered or picked up from stores,” CEO Supam Maheshwari said,
adding that customers order 11 times a year from FirstCry. He declined
to comment on the valuation. The deal will help First-Cry move faster
towards its goal of profitability, as it leverages scale to drive cost
efficiencies, rope in more brands and even expand to international
FirstCry will also look at more acquisitions, especially in segments
like kidswear brands and digital media startups targeting parents,
according to Maheshwari.
FirstCry’s acquisition of Mahindra BabyOye reverses the trend of
justoffline players such as Future Retail acquiring Fabfurnish at a
distress price of less than Rs 10 crore and Titan Company buying 62% in
online jewellery retailer CaratLane for Rs 357 crore.
All vertical etailers, from eyewear player Lenskart, furniture seller
Pepperfry and lingerie player Zivame, have built or are building a
large offline presence. Even fashion portal Myntra, part of Flipkart,
plans to sell its private labels through offline retail.
The move also comes at a time when the world’s largest retailers are
looking to build omnichannel players. US brick and mortar retail giant
Walmart has made building an online presence a priority, also acquiring
etailer Jet for $3.3 billion.
On the other hand, online retail giant Amazon reportedly plans to open
retail outlets in the US. The baby and mother-care segment presents a
$12-billion market, but it also presents its own challenges given the
complexity of products.
holds huge potential but it’s also troublesome to operate as it has a
mix of FMCG type of products, then apparel and then also more durable
products which do not sell as fast,” said Devangshu Dutta, CEO at
retail consultancy firm Third Eyesight.
Mahindra Retail operates stores under BabayOye in two formats, 39 under
franchisee agreements and 81 company-owned stores. While FirstCry is
acquiring the franchisee division, Mahindra Retail will continue to
operate company-owned stores as it becomes master franchisee for the
brand. Mahindra Retail will shut down its online commerce business
under BabyOye, a startup which it acquired in 2015 in order to build
out its online commerce business.
“Fundamentally, Mahindra Retail had a physical presence only and the
online business had a very nascent presence,” said Zhooben
Bhiwandiwala, president of the group’s private equity unit Mahindra
Partners under which the retail business is housed. “It made no sense
for both the organisations to be battling each other in the marketplace
and burning cash.”
Experts tracking the space said the deal will give FirstCry access to
Mahindra Retail’s stores, which are located in more premium or
high-street areas, besides international kids brands like Carters.
Mahindra BabyOye had seen revenues stagnate between Rs 205 crore and Rs
230 crore for the last three financial years. The business was also
reporting losses ranging from Rs 114 crore to Rs 121 crore during the
period, and the deal allows the conglomerate to offload a business
which was not core.
“With this deal, Mahindra is consolidating its presence in the space,
and FirstCry will become most powerful and well-financed entity,” said
Bhiwandiwala, who will also join the board of FirstCry.
in The Economic Times)