Private equity firms to buy 35% of Crompton Greaves unit

New Delhi: In a deal that is likely to be announced early this week, private equity (PE) firms Advent International Corp. and Temasek Holdings Pvt. Ltd will acquire around 35% of Crompton Greaves’ consumer products business from Gautam Thapar-promoted Avantha Holdings Ltd. The private equity firms will then launch an open offer to buy an additional 26%, according to two persons familiar with the development.

“The deal is likely to be announced as early as this week. The deal values the consumer product division little over $1 billion including the debt of the consumer product business,” the first of the two persons quoted above said. He requested anonymity. Advent International is expected to hold two-thirds of the 35% stake while Temasek Holdings will own the remaining stake, he said, adding that a similar ratio will be maintained post the open offer.

Advent International declined to offer any comments for the story. “As a matter of policy, Temasek does not comment on market speculation and rumours,” a Temasek spokesperson said. Crompton Greaves declined to comment.

On 8 April, the Economic Times had reported that Advent and Temasek would team up to buy Crompton’s consumer products business.

Raja Lahiri, partner at consultancy firm Grant Thornton India LLP said Crompton Greaves has a robust consumer business which has the potential to function as an independent unit. Lahiri declined to comment on the specific deal by Advent International and Temasek as a matter of policy.

“Crompton Greaves’ consumer business is an old and legacy business for the group. Hence, the new investors will have to handle these legacy issues with caution,” he said.

In July 2014, Crompton Greaves, which makes products ranging from transformers to electrical appliances, had decided to demerge its consumer products business unit into a separate publicly traded firm, as a prelude to a potential stake sale. Fans, appliances, lighting, pumps, home automation, integrated security systems and wiring accessories come under the consumer products business unit. The firm has two more business divisions: power systems (that makes switch gear products) and industrial systems (that makes generators).

At the time, the firm said the demerger will create better growth opportunities for its two large but significantly different businesses: power, industrial and automation which is B2B (business to business); and the consumer products business which is B2C (business to consumer).

The idea was to allow the two businesses to grow independently, pursue more ambitious strategic goals and, thus, create further value for existing shareholders, the company had said in July. In March 2015, Crompton Greaves had secured necessary approvals to demerge its consumer product business into a separate listed entity. The new firm—Crompton Greaves Consumer Electricals Ltd—will be a new operating company from 1 October 2015 under the so-called scheme of arrangement.

Crompton Greaves will apply for listing its shares on the BSE and National Stock Exchange (NSE), the firm said on 3 March.

While the stake sale to the PE funds has been finalized, the management structure post the stake sale remains unclear.

Both persons quoted above declined to disclose details.

For the quarter ended 31 March 2014, the consumer products division registered a revenue of Rs.748.36 crore, contributing a little more than one-third to the company’s total revenue. The company has lately been focusing more on its consumer durables segment. For instance, in the fiscal 2014, Crompton Greaves increased its reach by adding 11,150 new retailers and 194 distributors, according to its annual report.

Founded in 1984, Advent International is one of the largest global private equity investors. Since inception, the firm has invested in more than 290 buyout transactions in 39 countries. The firm has €25 billion in assets under management with special focus on consumer business, according to its website. Temasek is an investment company based in Singapore, with a S$223 billion portfolio as on 31 March 2014.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.