Acquisitions remain high on FMCG list

Despite the rising tide of inflation and its impact on demand, fast moving consumer goods (FMCG) companies continue to retain their appetite for acquisitions.

Data from deal tracking agency Grant Thornton shows that the number of transactions in the period between January and May was marginally higher than the number in the corresponding period a year ago. It stood at 10 in the period under review versus nine last year.

But the total deal value in the five-month period was lower by almost 22 per cent to $258 million, against $358.71 million in the year-ago period. Analysts attribute this to a sense of caution that prevails among companies. While most do not mind picking up good firms, they rather do it at the right price.

Navroze Mahudawalla, managing director of Mumbai-based Candle Partners, a boutique advisory and investment banking firm, said: “Most consumer-focused companies have been concerned about valuations in the space. That remains a point of friction between the seller and the buyer.”

Echoing similar views, Sunil Duggal, chief executive officer, Dabur India, said: “Valuations are steep.” And thanks to the defensive nature of FMCG stocks, sellers continue to have fairly high expectations when it comes to valuation of their firms.

Six months ago, British consumer goods maker Reckitt Benckiser snapped up Ahmedabad-based FMCG and over-the-counter product manufacturer Paras for a whopping eight times sales and 30 times EBITDA.

While most described this as a flash in the pan, investment bankers admit that sellers do seek their pound of flesh while eyeing an exit. The Dandekar family of stationary major Camlin, for instance, chose to go slow while selling their stake in the firm. It took them months to decide on whom they wanted to offload their stake to, according to persons privy to the negotiations between the promoter family and prospective buyers. They finally settled on Kokuyo, a Japanese stationary major, with whom Camlin had a distribution tie-up.

Shriram Dandekar, executive director, Camlin, who was instrumental in sealing the deal on behalf of the promoter family said: “I was conversant with the product line, manufacturing capabilities, management style and financial strength of Kokuyo. That is what helped cement the venture.”