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Everstone Capital picks up 51% stake in Indonesian franchise of Domino's Pizza

The Economic Times:  May, 2014

Mumbai: After wine, coffee, burgers and gelato, it's now time to turn to pizzas for marque private equity investors Everstone Capital. The seven-year-old India and South East Asia focused fund with $2 billion of assets currently under management, has taken a big bite of Domino's Pizza's in Indonesia by picking up a controlling 51% stake in their local franchise, PT Dom Pizza Indonesia, for $20 million, said people aware of the development.

Everstone's arm, F&B Asia Ventures, which specialises in creating a portfolio of food and beverage brands and assets across South Asia and India, willbe the vehicle for this new investment. The company will use the money to expand its existing operations of 60 branded pizza outlets in six Indonesiancities, including Jakarta and Bali. Everstone was started in 2006 by former Goldman Sachs bankers Atul Kapur and Sameer Sain.

Leading local retailer Mitra Adiperkasa (MAP) will continue to own the residual 49% stake in the joint venture. MAP, the largest retailer in Indonesia withover 1,800 stores in 59 cities, owns departmental stores, food and beverage chains and has a unique franchisee portfolio of over 150 global fashion andlifestyle brands like Zara, Marks & Spencer and Starbucks and distributes Wilson, Speedo and Barbie.

An email query to Everstone spokesperson went unanswered till the time of going to press. This investment is in sync with Everstone's overarching consumerthesis - including education, healthcare, financial services and logistics - and especially its long-term focus on the hugely expanding F&B space in the region. It recently brought Burger King to India and also owns the local franchise for the popular chain Coffee Bean & Tea Leaf. In 2012, it acquired Singapore-based pubs and restaurants operator Harry's Holding, owners of the eponymous chain of bars. With such a focused strategy, it created aninvestment holding company F&B Asia Ventures to build a pan-Asian food and beverage platform with assets across multiple cuisines, geographies and formats.

The company is focused on expansion of brands via organic and inorganic routes, through bolt-on acquisitions and franchise models for franchising brands in other South-East Asian countries. While Everstone owns 75% in it, Verlinvest SA, a Belgian family office, owns 25%. "Quick service restaurant platforms are getting much better valuations than casual dining since they can be easily scaled up. On the back of their good economics, these can also be taken to market easily," says Deepesh Garg, MD, o3 Capital, a boutique investment bank.

Even though India remains its main market, there's similarity between the domestic market and that of Indonesia. "Like India, Indonesia too has a huge population and a spending middle class. On a large consumption base, food is a big theme and interestingly pizzas as a category has made big in roads already," said an analyst familiar with the market. Analysts feel the Everstone investment will help Domino's catch up with other global rivals like KFCand McDonald's that dominate the fast food chains in Indonesia.

"More operators are expected to introduce more diverse menus, ranging from full-course meals or light snacks to drinks and desserts. Hence, with the addition of more outlets, competition will become tougher and most chains are likely to compete on menu innovations," said a September 2013 report preparedby Euromonitor International on the consumer food service business in Indonesia. "Besides menu innovations, fast food operators are expected to step upefforts to boost sales. The strategies may include aggressive and innovative advertisements and co-branding with banks and mobile phone service operators,"it added.