Evaluating M&A Opportunities in Family Owned Business

INDIA

Evaluating M&A Opportunities in Family Owned Business

Advisor: Dr. Harbir Singh

Abhishek Agarwal, Pat Patel
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Evaluating M&A Opportunities in Family Owned Business

Contents
Overview of the Study .........................................................................................................................................5 India an Introduction ........................................................................................................................................5 Investment Rationale ...........................................................................................................................................6 Economic Factors .............................................................................................................................................7 Political situation:.........................................................................................................................................7 Economic situation:......................................................................................................................................7 Government regulations ..............................................................................................................................7 Trade constraints .........................................................................................................................................7 Infrastructure: ..............................................................................................................................................8 Human Factors .................................................................................................................................................8 Non Participative Stake holders: ..................................................................................................................8 Family Emotions: ..........................................................................................................................................8 Conflict of Interest: ......................................................................................................................................9 Human Resource: .........................................................................................................................................9 Governance: .................................................................................................................................................9 Fairness: .................................................................................................................................................... 10 Succession Planning: ................................................................................................................................. 10 Change: ..................................................................................................................................................... 10 Investment Criteria ........................................................................................................................................... 10 Economic Moat: ........................................................................................................................................ 11 Controlling or significant interest: ............................................................................................................ 11 Historically Established Brand Name: ....................................................................................................... 11 Big enough opportunity to accommodate 2-3 big players: ...................................................................... 11 Value Creation: ......................................................................................................................................... 11 Target IRR of 20%: ..................................................................................................................................... 11 Exit window in 5-7 years: .......................................................................................................................... 12 Value Creation Strategy .................................................................................................................................... 12 Value creation through financial structuring and operational guidance:................................................. 12 Active board participation with minimal day to day interference: .......................................................... 12

Evaluating M&A Opportunities in Family Owned Business Growing business organically with Synergistic acquisitions: .................................................................... 12 Operational enhancements accompanied with best practices in corporate governance reporting, internal processes and procedures:.......................................................................................................... 13 Create right Incentive structure to eliminate agency costs: ..................................................................... 13 Industries Researched....................................................................................................................................... 13 IT Industry: ................................................................................................................................................ 13 Power Sector: ............................................................................................................................................ 13 Banking and Finance: ................................................................................................................................ 14 Oil and Gas Industry: ................................................................................................................................. 14 Infrastructure Industry:............................................................................................................................. 14 Food & Food Processing Industry: ............................................................................................................ 14 Health & Wellness Industry: ..................................................................................................................... 14 Industries Chosen for Detail Research .............................................................................................................. 15 Food & Food Processing Industry: ............................................................................................................ 15 Health & Wellness Industry: ..................................................................................................................... 15 Food & Food Processing Industry ..................................................................................................................... 16 Dairy and Probiotics .................................................................................................................................. 17 Fruits and Vegetables................................................................................................................................ 18 Meat and Poultry Processing .................................................................................................................... 18 Fisheries .................................................................................................................................................... 18 Packaged Foods......................................................................................................................................... 19 Beverages .................................................................................................................................................. 19 Staples Bread, Wheat Flour, Salt and Sugar........................................................................................... 20 Snacks and Confectionery ......................................................................................................................... 20 Study Focus ................................................................................................................................................... 20 Competitive Landscape ................................................................................................................................. 21 ADF Foods Ltd ............................................................................................................................................... 22 History ....................................................................................................................................................... 22 Management ............................................................................................................................................. 22 Brands ....................................................................................................................................................... 23 Markets ..................................................................................................................................................... 24 Financials ................................................................................................................................................... 24

Evaluating M&A Opportunities in Family Owned Business Gits Foods Ltd................................................................................................................................................ 29 History ....................................................................................................................................................... 29 Management ............................................................................................................................................. 29 Products .................................................................................................................................................... 29 Markets ..................................................................................................................................................... 31 Financials ................................................................................................................................................... 32 Deal Discussion ............................................................................................................................................. 32 Comparison to Investment Criteria........................................................................................................... 32 Value Creation Strategy: ........................................................................................................................... 34 Seller Rationale: ........................................................................................................................................ 35 Exit Strategy: ............................................................................................................................................. 36 Deal Structure ............................................................................................................................................... 36 Valuation ................................................................................................................................................... 36 Recent Transactions .................................................................................................................................. 37 Company Valuation ................................................................................................................................... 38 Health and Wellness Industry ........................................................................................................................... 42 Pharmaceuticals ........................................................................................................................................ 42 Herbal & Ayurveda Drugs.......................................................................................................................... 43 Vitamins & Supplements........................................................................................................................... 43 Fortified Foods & Healthy Beverages........................................................................................................ 43 Study Focus ................................................................................................................................................... 44 Competitive Landscape ................................................................................................................................. 45 Hamdard ....................................................................................................................................................... 46 History ....................................................................................................................................................... 46 Management ............................................................................................................................................. 47 Products .................................................................................................................................................... 47 Markets ..................................................................................................................................................... 48 Financials ................................................................................................................................................... 48 Amruntanjan ................................................................................................................................................. 49 History ....................................................................................................................................................... 49 Management ............................................................................................................................................. 50 Products .................................................................................................................................................... 50

Evaluating M&A Opportunities in Family Owned Business Markets ..................................................................................................................................................... 52 Financials ................................................................................................................................................... 53 Deal Discussion ............................................................................................................................................. 58 Comparison to Investment Criteria........................................................................................................... 58 Value Creation Strategy: ........................................................................................................................... 60 Seller Rationale: ........................................................................................................................................ 61 Exit Strategy: ............................................................................................................................................. 61 Deal Structure ............................................................................................................................................... 62 Valuation ................................................................................................................................................... 62 Recent Transactions .................................................................................................................................. 62 Company Valuation ................................................................................................................................... 63 Fund Raising Opportunities............................................................................................................................... 67 Conclusion ......................................................................................................................................................... 68 Food & Food Processing Industry: ............................................................................................................ 68 Health & Wellness Industry: ..................................................................................................................... 69 Bibliography ...................................................................................................................................................... 70 Appendix ........................................................................................................................................................... 71 Appendix 1: Interviews with Industry & PE companies ........................................................................... 71 Appendix 2: LBO Transactions Details ...................................................................................................... 79 Appendix 3: FMCG Entry Deal Data .......................................................................................................... 80 Appendix 4: Pharma Entry Deal Data........................................................................................................ 83 Appendix 5: FMCG Exit Deal Data ............................................................................................................. 87 Appendix 6: Pharma Exit Deal Data .......................................................................................................... 88

Evaluating M&A Opportunities in Family Owned Business

Overview of the Study

According to a 2011 PwC report, India's GDP at purchasing power parity could overtake that of the United States by 2045. During the next four decades, Indian GDP is expected to grow at an annualized average of 8%, making it potentially the world's fastest-growing major economy until 2050. The report highlights key growth factors: a young and rapidly growing working-age population; growth in the manufacturing sector due to rising education and engineering skill levels; and sustained growth of the consumer market driven by a rapidly growing middle class. Among all this growth major companies in India are still run by Family owned businesses. According to some estimates Family-run businesses currently account for a whopping 95 per cent of all Indian companies. Some of them like Tatas, Ambanis, Mittals have been extremely successful in becoming an international brand. Half of the top businesses in BSE 30 are controlled by Family businesses; but there are numerous other businesses that have not achieved their fullest potential and have not been able to grow from their initial business remaining stagnant. There are many problems because of which these businesses have failed to grow, few of them are: Lack of Business Acumen to take the business multinational Lack of proper business controls and policies Lack of long term view Lack of Scale to achieve economies Lack of leverage to sufficiently use the capital invested Lack of sufficient Capital to grow business Lack of professional management team

All these problems can be resolved by bringing in alternative resources like private equity investments and a structure with professional management team to make these businesses conglomerates and highly successful. This paper is a an attempt to look at few of the industries and some of the specific businesses in those industries where we think a capital investment and professional management can help them become world class companies transforming them from also-rans to significant players in their industries.

India an Introduction
India is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world. The Indian subcontinent was always identified with its commercial and cultural wealth for much of its long history.

Evaluating M&A Opportunities in Family Owned Business Today, according to the International Monetary Fund, as of 2011, the Indian economy is nominally worth US$1.843 trillion; it is the tenth-largest economy by market exchange rates, and is, at US$4.469 trillion, the third-largest by purchasing power parity, or PPP. With its average annual GDP growth rate of 5.8% over the past two decades, and reaching 10.4% during 2010, India is poised to become one of the world's fastestgrowing economies in the world.

The 467-million worker Indian labor force is the world's second-largest. The service sector makes up 54% of GDP, the agricultural sector 28%, and the industrial sector 18%. Major industries include textiles, telecommunications, chemicals, food processing, steel, transport equipment, cement, mining, petroleum, machinery, and software. In 2006, the share of external trade in India's GDP stood at 24%, up from 6% in 1985. In 2008, India's share of world trade was 1.68%; India was the world's fifteenth-largest importer in 2009 and the eighteenth-largest exporter. Major exports include petroleum products, textile goods, jewelry, software, engineering goods, chemicals, and leather manufactures. Major imports include crude oil, machinery, gems, fertilizer, and chemicals. Between 2001 and 2011, the contribution of petrochemical and engineering goods to total exports grew from 14% to 42% Averaging an economic growth rate of 7.5% during the last few years, India has more than doubled its hourly wage rates during the last decade. Some 431 million Indians have left poverty since 1985; India's middle classes are projected to number around 580 million by 2030. Though ranking 51st in global competitiveness, India ranks 17th in financial market sophistication, 24th in the banking sector, 44th in business sophistication, and 39th in innovation, ahead of several advanced economies. With 7 of the world's top 15 information technology outsourcing companies based in India, the country is viewed as the secondmost favorable outsourcing destination after the United States. India's consumer market, currently the worlds thirteenth-largest, is expected to become fifth-largest by 2030. Its telecommunication industry, the world's fastest-growing, added 227 million subscribers during the period 201011. Its automotive industry, the world's second fastest growing, increased domestic sales by 26% during 200910, and exports by 36% during 200809. Power capacity is 250 gigawatts, of which 8% is renewable.

Investment Rationale
There is a basic investment thesis that needs to be done by a fund before committing itself for any business. In this case the thesis needs to be done on the following two dimensions:

Evaluating M&A Opportunities in Family Owned Business 1. Economic Factors: Factors that will contribute to the long term growth and profitability of the acquired business 2. Human Factors: If there are economic factors supporting higher valuation are there other human factors that are affecting the valuation and can these be improved to achieve the true value of the company? These plays a huge role in family owned and operated businesses.

Economic Factors
The economic factors are the factors that will contribute to the long term growth of the company. Economic growth is one of them and as highlighted earlier, India is expected to grow at a terrific pace of close to 8% over next 20-30 years. But to do a comprehensive analysis we need to look at other dimensions that not only look at the potential for growth but factors that will help achieve this potential. The economic factors that favor an investment in India are:

Political situation: India is the largest democracy in the world with a multiparty system that has been extremely stable over last 60 years. The judicial system is extremely sophisticated and well developed. Over last 60 years India has never suffered a military coup and the civil society is supreme in the power structure. All this makes any political risk at very low for India.

Economic situation: India grew at the rate of 10.4% in 2010 and at 7+% in 2011. Also this growth rate is expected to continue for coming 10-20 years. All this growth makes an investment in the economy extremely safe and extremely lucrative.

Government regulations: India suffered under licensing regulation by the government in various sectors for more than 40 years and achieved insignificant growth. Since the reform of 1991 the growth in India has exploded and that has given confidence to government to open more markets. Recent issues like FDI in retail markets have created some ill effects on the regulation front but the path is clearly on the side of deregulation. Going forward most businesses can be confident that the regulation will be less compared to point when they enter the business.

Trade constraints: Although India is not as open as Singapore and there are still few trade constraints on non-essential and finished goods, if a company is doing a value add service (rather than exporting just the

Evaluating M&A Opportunities in Family Owned Business raw materials) there are not many constraints. Also, if you are investing in economic zones there are many incentives that Indian government provides for your business development.

Infrastructure: There is a clear lack of roads and ports for transportation and exports, but a lot is done to improve that. Indian Government is spending billions of dollars under Public and private partnerships to improve all that. Also DMIC (Delhi Mumbai Investment Corridor) is a great example of such initiatives. In next decade companies can expect for infrastructure to become much better and easily accessible.

Human Factors
As highlighted in Introduction section nearly 95% of business in India is Family controlled and all of them have not achieved their fullest potential and lack professionalism. This provides an opportunity for a professional management to take over these businesses and turn them around to achieve its maximum potential. But before committing any capital it is important to understand are these human factors a reason for the lack of growth or is it something else. There are many studies that have been done to define the reasons of non-performance of family owned businesses1. Looking at the potential target for these factors can provide confidence to the acquirer that fixing these issues can have a positive impact on the business and can make the acquisition a profitable one. Some of the factors that hinder family owned business from growth are: Non Participative Stake holders: Every family-owned business have some members who are actively involved in the business, but there are also stake holders who are not an active part of the business like mother, sisters, uncles, aunts, in-laws etc. These people are interested only in dividends and earnings and not in the growth of the business they are unable to comprehend the problems of operating a business. Relatives, who are engaged in daily operations, judge major matters from the viewpoint of the production, sales and personnel necessary to make the company successful. Obviously, these two viewpoints may conflict in many instances especially when relatives may not have the relevant management or professional experience. Family Emotions: Emotion is a big dimension in family-owned firms, as brothers and sisters, uncles and aunts, nephews and nieces, and fathers and children work together. The problem arises in recognition of these dimensions of emotions and to make objective decisions. It is hard to make objective decisions about
1

Road Blocks in Enhancing Competitiveness in Family-Owned Business In India, Dr. Ritu Bhattacharyya

Evaluating M&A Opportunities in Family Owned Business the skills and abilities of each other, especially when some members rake up unpleasant instances to question abilities. Emotional outbursts are many in family-owned businesses and the quarrels and ill feelings of relatives have a way of spreading out to include non-family employees. It is very difficult to keep the bickering from interfering with work and the company becomes divided into warring camps. Employee motivation becomes difficult or divided in these instances resulting in downward spiral for the business.

Conflict of Interest: India as a country has a very high family orientation and a high level of corruption. It is therefore seen as a security that family members are trusted with all important jobs since culturally outsiders are not trusted. It is almost impossible to give a job to an outsider if a member of the family has shown an interest in the same and it is almost unheard of that the family members is available but not necessarily eligible for the top most post and it has gone to an outsider. Sometimes jobs and responsibilities are given to family members in-spite of being aware of their inability to perform them. This ultimately affects the business and its bottom line. If a member of the family has to be in charge of operations, he or she should be capable of using efficient management techniques and be thick-skinned enough to live with family bickering and tough enough to make his or her decisions

Human Resource: In family-owned business the family has to be always accommodated first with jobs. This is a facet nobody can deny. But the bigger problem is not of hiring incompetent family members, but of how they affect other employees. In some cases, family members and relatives can demoralize the organization by their dealings with other employees. They may loaf on the job, avoid unpleasant tasks, take special privileges, make drastic errors and not be reprimanded etc. Untalented family members should be put in jobs where they will have minimum contact with other employees, out of the mainstream of decision making

Governance: It is very difficult in family businesses to define authority. If a younger member is made CEO he/she may find it very difficult to tell his father/mother, uncles/aunts, grandparents or elder members of the family to change their style of functioning. The youngsters cannot caste off his/her role in the family of an obedient youngster and take on the role of the leader of the business. Many members in the family also tend to overlook decisions taken by younger members even if they are at positions of authority. This makes management of the business very difficult for the younger generation. "Family employees" should discipline themselves to work within the bounds of these lines of authority

Evaluating M&A Opportunities in Family Owned Business Fairness: Families in India have always prided themselves in being fair to all within the family. In-spite of large families with limited resources we traditionally believe in equality, and this philosophy has also manifested itself in family-owned businesses where the business pie must he shared by all equally and the sharing must not mean that any member of the family gets less. This results in fragmentation of business and cross holdings to ensure that the weaker family members share is taken care of even if he/she cannot operate his business. For families this philosophy has worked wonderfully but for a business it can spell doom because Indian family businesses are split up in every generation thus keeping the size small and uneconomical as compared to global standards. Cross holding have meant that the rivalry within the business continues and there is bitterness among family members that adversely affects business. Classic example is the splitting of Reliance Industries between the Ambani brothers.

Succession Planning: Succession planning is almost absent in family-owned business in India. Even the biggest private sector company in India Reliance faced huge problems after the patriarch died because there was not clear succession planning it was believed that the younger brother would stay under the wings of the elder brother though the cracks were visible even when Dhirubhai Ambani was alive. The split in the company was not amicable and resulted in a loss to the investors wealth and Reliance slipped from its higher level position in the Forbes List. If business leaders like Dhirubhai Ambani who is revered for his foresight in Indian business did not tackle the issue of succession very little is expected from other smaller business houses

Change: Change is something that does not happen in family-owned businesses in India as a process. Change is undertaken as a last resort when it is believed that the business will close down. In order to survive in the global arena it is essential for business houses to change at a fast rate and adapt to changing business times

Investment Criteria
The investment criteria of the fund created to lead the M&A process will be based on economic moat (Porters five forces) of the company plus other important factors that are required to successfully bring the change in the company. Following criteria will be used to evaluate any business as a candidate:

Evaluating M&A Opportunities in Family Owned Business Economic Moat: A company's economic moat represents the ability to keep competitors at bay for an extended period of time, which translates into prolonged profits in the future. Economic moats are difficult to express quantitatively but are a vital qualitative factor in a company's long-term success or failure. A wide moat - characterized by things such as a well-known brand name, pricing power, and a large portion of market demand - correlates to a larger and more sustainable competitive advantage. Usually Porters 5 forces are used to evaluate the economic moat of a company. Controlling or significant interest: Most of the family owned businesses have been part of family for generations and hence the line differentiating business and families does not exist creating huge agency issues. Getting a significant interest in the business will allow the fund to execute the plans effectively and at a fast pace. Unless the fund acquires a significant interest allowing them to bring in additional professional management or change of management or capital structure, chances of success will not be as high. Historically Established Brand Name: This is one of the most important criteria that we will be evaluating while looking to buy the family owned business. Does the brand evoke nostalgia and positive image? If the brand fits this criterion then the fund through its effective management can resurrect it and create a global company around it. Big enough opportunity to accommodate 2-3 big players: India is a huge country and most of the sectors that are attractive and have attracted global competition. In this light finding a sector that is attractive enough and does not have a big player would be extremely difficult. On the other hand finding niches in these sectors where we can leverage strengths of a particular brand is definitely possible. With Indian economy growing at 8-10% rate these niche sectors should provide enough head room to make great organizations. Value Creation: Other important criteria to invest in the fund would be a clear opportunity of value creation. If a company that is already well governed with proper financial structure there would be no scope of value addition and buying out this company would be an exercise in futility. Target IRR of 20%: The Fund will target a minimum IRR of 20% while this is not a very high compared to target IRRs of 20-25% that most of the funds target. Our Interview with top PE firms in India also provided a benchmark of 25% IRR. We think the certainty of success in this sector should lower the risks and hence demand a lower IRR.

Evaluating M&A Opportunities in Family Owned Business Exit window in 5-7 years: Ideally any fund would love to have an exit window of 3-5 years but due to legal and other reasons we have deliberately put the exit window to a longer span of 5-7 years. This long time will allow us to turnaround the business and add maximum value to the company.

Value Creation Strategy

The fund will try to create value by be focusing on a "buy and build" strategy that entails the following criteria:

Value creation through financial structuring and operational guidance: Most successful family owned and operated businesses in India have too much equity and do not have enough debt. All of these family owned businesses can undergo a financial structure improvement. While various regulations and presence of black market has allowed companies to hide a lot of income and hence rendering the tax shield advantage not that useful. IF they want to grow and become a world class company they have to let go of the black income, and hence a right financial structure with sufficient tax shield can go a long way in improving the profitability of the business. At the same time running the company based on family structure does not bring in operational efficiency and a lot of work is done without planning. Bringing operational efficiency to these businesses can go a long way in improving profits.

Active board participation with minimal day to day interference: As per a Kellogg Business school study most of the family owned businesses are short term in their thinking. This lack of long term planning results in decision making that hinders their growth and profitability. On the other hand these family owned businesses understand what is happening on the ground and have good established relationships with their communities to execute the business profitably on day-to-day basis. Thus our strategy of active board participation, strategic management with their execution should help these businesses to improve the profitability.

Growing business organically with Synergistic acquisitions: With Indian economy growing at 8-10% rate organic growth of business with long term planning can be highly profitable for the fund. Synergistic acquisition with vertical or horizontal integrations that can improve efficiencies can help to make these businesses world class.

Evaluating M&A Opportunities in Family Owned Business Operational enhancements accompanied with best practices in corporate governance reporting, internal processes and procedures: As we discussed earlier lack of governance and operational structure is the biggest hindrance for family owned business to achieve their potential and is the most critical step. As part of buying these businesses we will critically look at all the operational procedures and governance structures. Once the assessment is complete we will bring world-class industry experts to structure the operations and instill governance that can improve the efficiency and profitability of these businesses.

Create right Incentive structure to eliminate agency costs: Currently due to the approach of fairness in a lot of family businesses the profits are divided equally even when a lot of family members are not putting in their fair share in the businesses. An important aspect of bringing operational efficiency to these businesses would be to ensure that the incentive structure is set right so that every member of the corporation is incentivized enough to bring his best to the table.

Industries Researched
We looked at a lot of industries that look promising in the Indian market. All these industries have a significant potential for investment and consolidation play: IT Industry: It industry has been the growth engine for the country for last decade. Companies like Infosys and Wipro are world class players and Indians have established themselves as the go to place for any IT work that needs to be done. In addition to that there is enough talent in the country that we can expect to create a few more world class organizations. Having said that the potential and openness of the industry has made it attractive for all the players and hence the valuations are already extremely high for these companies. Power Sector: With the rising population and growth story of India, the need of fast paced growth in power generation is increasingly gaining importance. Energy is one of the major contributors to the economic development of a country. The government has targeted electricity for all by 2012 by the end of 11th Five Year Plan. The demand of electricity is growing exponentially. And, herein lays the opportunities for investors to plough their money in public and private sector companies both. These opportunities though big require big investments and are heavily regulated thus making it unsuitable for a fund investment.

Evaluating M&A Opportunities in Family Owned Business Banking and Finance: Banking industry is said to be a mirror of an economys health. A Sound banking system serves as a significant trade enabler to the country. During the recent global crisis, Indian banking industry came out with flying colors on the back of stringent stipulations laid down the Central bank. With the opening up of the sector in early Nineties by the government, the industry has received a significant boost by the emergence of the private sector banks which increased competitiveness and enhanced the level of banking facilities to a top notch level. However, the recent global recession has also resulted on the future of the banking industry in India as such. Also current environment does not seem suitable to sustain a long term banking industry. Oil and Gas Industry: One sector that has disappointed until now is Oil and Gas sector. The prospects of the sector have witnessed a lagging demand as the global economy is still to witness a complete recovery. The recent crisis has stolen a huge chunk of the demand of oil and gas which is needed to stoke the growth engines of every major economy. Most of the large companies were building new capacities before the breakout of the recession. This new capacities led to excess supply and falling demand at a time when the demand was hit on account of slowdown and crisis. This led to plunge in the operating margins of the refiners who were stuck with excess supplies of crude products. Infrastructure Industry: The economic development of a country is directly linked with the infrastructural status of the country. Infrastructure not only acts as an enabler to higher growth but also generates employment and serves the social needs of the people of the country. If the economy is an emerging one like India which is a laggard on the infrastructural front, the growth in the infrastructure industry gains all the more importance. There are log of established players in the infrastructure industry and also the high barriers to entry made analyzing this sector as a potential investment target. Food & Food Processing Industry: As the growth of the economy chugs forward and consequently generates more employment and raises the standard of living of the middle class population; the demand for dynamic and processed food products will witness a manifold rise. The processed food comes with enhanced food life and value added services to the raw form of food products. It also provides boost to the farmers as increasingly modern techniques goes into production of food and other activities involved thereafter. As per an estimate, Indian food industry is expected to grow to $280 billion by 2015. Health & Wellness Industry: Health and Wellness industry can be defined in a narrow range of healthy living and eating, but in the context on India there is much more than health living. Consumers are becoming more proactive in finding ways for ensuring better health and overall well-being, with the result that the

Evaluating M&A Opportunities in Family Owned Business Indian market is witnessing a growing demand for various products that serve this need of the consumers. This sector consists of better Pharmaceutical products, Natural medicines, Fortified foods, Ayurveda drugs and supplemental vitamins. The Pharmaceutical industry in India is the world's third-largest in terms of volume and stands 14th in terms of value. According to Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers, the total turnover of India's pharmaceuticals industry between 2008 and September 2009 was US$21.04 billion. Exports of pharmaceuticals products from India increased from US$6.23 billion in 2006-07 to US$8.7 billion in 2008-09 a combined annual growth rate of 21.25%. Indian herbal market is one of the fastest growing market and may attain to INR 14,500 crore (INR 145,000 million) by 2012 and exports to INR 9,000 crore (INR 90,000 million) with a CAGR of 20% and 25% respectively. Vitamins and dietary supplements grow 14% in 2010 to reach INR 33 billion Child-specific vitamins and dietary supplements most dynamic with increase of 63%. This rapid growth has yet to create radical changes in the Indian distribution system. The main hurdles include the highly fragmented nature of the distribution network, limited advancement in regulatory reforms, and presence of strong resistance from lobbies of traders involved in the supply chain of pharmaceutical products.

Industries Chosen for Detail Research

After looking at various industries we selected two industries we wanted to study in detail. The selection was based on a lot of factors like: Fragmentation in the market, existing competition, prospects available for the merger, potential for the industry and finally global potential for the industry. After carefully looking at various industries we selected following two industries for detailed research. Food & Food Processing Industry: The food processing industry is characterized by a vast majority of players with any single player lacking in size to dominate it. The food processing industry Is growing above the growth rate of economy and positive demographic changes in India present a long term growth opportunity for the industry. Finally the huge size of the industry $280 BN (2015) make it a perfect sector to look for consolidation play and achieve economies of scale. Health & Wellness Industry: Similar to food processing industry Health & Wellness industry is highly fragmented and lacks a dominant player. Also similar to food processing industry Health & Wellness industry is growing at a much higher pace than the economic growth and is expected to maintain that growth. As an additional benefit the natural Ayurveda products made in India and if done with proper certifications have a

Evaluating M&A Opportunities in Family Owned Business huge global market and thus present an additional opportunity that does not exists in the food processing industry.

Food & Food Processing Industry

According to a study by McKinsey & Company, the Indian food market is poised to grow from US$ 155 billion in 2005 to US$ 310 billion by 2015 and US$ 344 billion in 2025 - at an approximate compounded annual growth rate of 4.1%. The development of the food industry in India stems from the consistently increasing agricultural output. With the second largest global arable land area, India is one of the key food producing countries in the world, second only to China. Currently, India ranks second in fruit production and third in vegetable production in the world. In 2007-08, food grain production in India had registered a 4.6% growth with 227.32 million tons as against 217.28 million tons in 2006-07, according to estimates by the Ministry of Agriculture. The output of coarse cereals in 2007-08 was 39.67 million tons, 17% higher than the 33.92 million tons in the previous fiscal. The total output of oilseeds is estimated to have risen to a record 28.2 million tons, about 16% higher than the 24.29 million tons in 2006-07. The production of pulses has risen to 15.19 million tons, registering a year-on-year growth of 7% and touching a new high. Indias food processing industry is one of the largest industries in the country - it is ranked fifth in terms of production, consumption, export and expected growth. India is one of the worlds major food producers but accounts for only 1.7% (valued at US$ 7.5 billion) of world trade in this sector this share is slated to increase to 3% (US$ 20 billion) by 2015. The Indian food processing industry is estimated at US$ 70 billion. According to the Ministry of Food Processing, this industry contributed 9% to Indias GDP and had a share of 6% in the total industrial production. The industry employs 1.6 million workers directly.

Evaluating M&A Opportunities in Family Owned Business Sustained by high agricultural output, international demand and a strong domestic market, the Indian food industry offers ample scope for large investments in processing technologies, skills and equipment, packaging, refrigeration of frozen food and thermo processing. Currently, only 6% of the country's fruit and vegetable produce is processed and India's share of the global market stands close to a dismal 0.03%. While the size of the global processed-food market is estimated at US$ 3.2 trillion and nearly 80% of agricultural products in the developed countries get processed and packaged (as suggested by 'India Food Report 2008', released at the Food Forum India, in Mumbai), there is huge scope for export-led growth in this particular sector. Dairy and Probiotics Thanks to Operation Flood, India today stands first in the world in terms of milk production .The output is expected to be about 108 million tons (estimate for 2007), growing at a compounded annual growth rate of 4%. Consumption of milk has registered a growth of nearly 8.4% (in urban areas) and is currently valued at US$ 16 billion. Within India, the dairy sector also ranks second in terms of processed foods with 37% of the produce being processed. The organized sector processes an estimated 15% of the total milk output in India. There are 676 dairy plants registered with Government of India, which come under the organized sector. According to estimates of Dairy India 2007, the current size of the Indian dairy sector is US$ 62.67 billion and has been growing at a rate of 5% a year. Both production and consumption of milk and its derivatives are traditionally high in the country. The dairy exports in 2007-08 rose to US$ 210.50 million against US$ 113.57 million in the corresponding period, in the last fiscal, whereas the domestic dairy sector is slated to cross US$ 108 billion in revenues by 2011. The food processing treatment can be spread across various food products like products with low shelf life such as fruits and vegetables, dairy products & grain processing and storage among various other fields related to food products. The upcoming years are likely to witness a fast growth in ready-to-consume food products like health drinks, frozen food products for low-shelf life food articles, readymade Aata (flour), fruit juices, ready-to-cook meals, quicker snack products like noodles and pastas, etc. with increase in percentage of working couples and busy life style.

Evaluating M&A Opportunities in Family Owned Business Fruits and Vegetables India produces the widest range of fruits and vegetables in the world. It is the second largest vegetable and third largest fruit producer accounting for 8.4% of the worlds food and vegetable production. The share of organized sector in fruit processing is estimated to be nearly 48%. Fruit production in India registered a growth of 3.9% during the period 2000-05 whereas the fruit processing sector grew several times faster at 20% over the same period. The total area under fruit cultivation is estimated at 4.18 million hectares. The total area under vegetable cultivation is estimated at 7.59 million hectares. However, less than 2% of the total vegetables produced in the country are commercially processed, as compared to nearly 70% in Brazil and 65% in USA. Indias installed capacity for fruits and vegetable processing nearly doubled during the 1990s, from 1.1 million tons in 1993 to 2.33 million tons in 2004. Meat and Poultry Processing India has the largest number of livestock population in the world accounting for 50% of buffaloes and 16% of the goat population. Meat production grew at a CAGR1 of 34% during the period 1999-2004 and stood at US$ 12.44 million in 2005-06. Meat exports stood at US$ 0.104 million in 2005-06. Most of the animals in India are not bred for meat. Animals generally used for production of meat are cattle, buffaloes, sheep, pigs and poultry. Only 11% of the buffalo population, 6% of the cattle, 33% of the sheep and 38% of the goat population is culled for meat. Consumption per head of both fresh and processed meat is very low at 1.5 kg compared with world average of 35.5 kg. Indian poultry meat market was approximately US$ 2.03 billion in 2005. The country's poultry market is expected to grow at 12% -15% per annum. At the same time, fuelled by a booming retail sector, the market for processed meat is also growing at an estimated 15% - 20% per annum. Fisheries India with its considerably long coastal lines enjoys a natural advantage in the marine food sector. India is the third largest fish producer in the world and second in in-land fish production. The fisheries sector in India has been classified into marine, inland and aquaculture. The fisheries sector contributes 1.1% to the

Evaluating M&A Opportunities in Family Owned Business countrys GDP. This segment also provides employment to 11 million people engaged fully, partially or in subsidiary activities pertaining to the sector. According to the estimates by Marine Products Export Development Authority (MPEDA), Indian seafood exports rose to US$ 1.55 billion during 2007-08. Frozen shrimp accounted for 52% of total marine exports at US$ 980 million followed by frozen fish at US$ 326 million. Indias fish production stood at a level of 6.7 million metric tons in 2007. Of this, about 60% (3.9 million tons) came from marine resources. Packaged Foods The packaged foods segment in India registered a growth of 8% in 2005-06. Noodles/vermicelli is the fastest growing category in this segment with a CAGR at 15%. The market for branded noodles is estimated at 230 million servings per year. The soups market is still small and nascent in India and is approximately US$ 14 million in value. The market for culinary products is estimated at US$ 475000 and estimated to grow at 18% to 20% per annum. Products like tomato ketchup and jams currently have low penetration levels, but are growing rapidly. Ketchups, for ex-ample, have a penetration of just 3% in India; however, this category is estimated to be growing at 20% per annum. Beverages The beverages market primarily consists of non-alcoholic beverages which can be broadly classified into carbonated drinks, non-carbonated drinks and hot beverages. According to industry experts, the market for carbonated drinks in India is worth US$ 1.8 billion while the juice and juice-based drinks market accounts for US$ 300.67 million, of the approximately US$ 2.38 billion packaged beverages category. Growing at a rate of 25% per cent, the fruit-drinks category is one of the fastest growing in the beverages market. The US$ 1.80 billion carbonated drinks category is expected to face the heat of the rising competition from categories falling under the health umbrella, i.e. juice and juice-based drinks, energy and sports drinks, malted beverages, probiotic drinks and bottled water. They are considered a socially acceptable alternative to alcoholic beverages.

Evaluating M&A Opportunities in Family Owned Business At US$ 300.67 million, the juice and juice drink category is among the fastest growing segments while fruit drinks as a category is growing at 18% - 20%, carbonated soft drinks are growing at 6% - 8% driven by the positive changes in Indias consumer profile. Hot beverages include health drinks such as white beverages (Horlicks, Bournvita, etc) and brown beverages such as tea/coffee as well as branded drinks (Boost). The total size of this market is estimated at US$ 333 million by value and 85000 tons by volume. White beverages account for 65% of the market and brown beverages constitute the remaining 35%. Staples Bread, Wheat Flour, Salt and Sugar Bread is slowly coming to be a staple product consumed by people of all economic classes in India. Total bread production in the country in 2004-05 was estimated at 2.7 million tons, growing at 7.5%. About 55% of bread production comes from the organized sector. India is the second largest producer of wheat in the world with an output of more than 70 million tons. Branded atta (wheat flour) is an important item in this segment with an estimated market of US$ 195 million. Snacks and Confectionery The Indian market holds enormous growth potential for snack food, which is estimated to be a market worth US$ 3 billion. The market is clearly and equally divided into the organized and unorganized sector. The organized sector of the snack food market is growing at 15% - 20% a year while the growth rate of the US$ 1.56 billion unorganized sector is 7% - 8%. Consumption level of commercial savory snacks is 10 times higher than that in the rural markets. Around 1000 snack items and 300 types of savories are sold in India. The segment is largely dominated by potato chips and potato-based products with over 85% share of the salty snack market.

Study Focus
In this study we focused on the Packaged and ready to eat part of processed food only. Changing societal trends in India are having a major impact on Indians consumers food behaviors:

Evaluating M&A Opportunities in Family Owned Business One of the most apparent changes in Indian society over the last decade is the creation of the impatient consumer this has been reflected in almost all aspects of consumer products and services, including fast moving consumer goods (FMCGs) and the retail industry. Traditionally, women in Indian society have been expected to take an active role in managing the processes of cooking and running the household, but this is changing. Due to higher income, rise in economic levels and rise of the middle class with dual income nuclear families, demand for processed food is expected to grow domestically.

Competitive Landscape
Leaders in foodservice sales of packaged food include the regional dairy cooperatives, with Gujarat Cooperative Milk Marketing Federation Ltd being particularly strong thanks to its strength in milk and cooking fats. In addition to dairy players, foodservice sales also had a strong slant towards oils and fats suppliers, including niche players such as Zydus Wellness Ltd, which derived nearly 80% of its sales of margarine from foodservice supplies. Similarly, suppliers of canned and frozen foods derived the bulk of their sales from foodservice and institutional channels. The fastest-growing foodservice suppliers included players such as Vista Processed Foods Pvt Ltd and Mrs Bectors Food Specialities Pvt Ltd, which had contractual tie-ups with the leading chained foodservice operators and invested in expanding their production capacities towards the end of the review period. Foodservice suppliers that have tailored their products to match them directly to the foodservice brands menu requirements, as in the case of Vista Processed Foods Pvt Ltd and Mrs Bectors Food Specialities Pvt Ltd, have seen high levels of success over the review period. International brands that are relatively new entrants in India and are yet to develop brand recognition among Indian consumers are expected to benefit from being featured in the outlets and menus of the leading foodservice chains. For example, Barilla pasta was prominently featured by Pizza Hut as a part of its launch of a pasta menu in India. The Del Monte range of canned/preserved food and pasta was launched in India in mid-2009 by Field Fresh Foods Pvt Ltd a joint venture between Del Monte Pacific Ltd and Bharti Enterprises. The company was successful in tying up with Dominos Pizza to supply pasta and canned/preserved food to its outlets across India.

Evaluating M&A Opportunities in Family Owned Business The bulk of the foodservice supplies of packaged food in India were dominated by domestic players in 2010 as the largest foodservice categories by volume were fresh milk, vegetable and seed oil, and bread, in which domestic players held sway over multinationals such as Nestl India Ltd, Cargill India Pvt Ltd and Hindustan Unilever Ltd. Multinational brands and suppliers were more prominent in products such as olive oil and pasta, which are not widely consumed and manufactured in India.

ADF Foods Ltd

History ADF foods was started back in 1932 of a small retail store selling Dry Fruits & Nuts (American Dry Fruits), soon diversified into a Major Food Processing Company manufacturing Ethnic Indian pickles, chutneys, canned foods frozen foods and spices under various Brand Names which are today leaders in their segments and categories. ADFs owns international brands like Ashoka, Camel, Aeroplane, Khansaama and Truly Indian have reached many parts of the world. All this garnished with acquisitions of independent resources and a seasoned management. Apart from marketing and distributing its own Brands, we also are contract manufacturers for leading Multinationals and Mainstream Retailers worldwide. Management Mr. Ramesh H. Thakkar served as Managing Director of ADF Foods Limited since October 1, 2005. Mr. Thakkar has been Chairman of the Board of ADF Foods Limited since October 1, 2008. Mr. Thakkar serves as Director of Lustre Investment Private Limited, H J Thakkar Property Investment Limited and Power Brands (Foods) Private Limited. Mr. Bimal Ramesh Thakkar has been the Managing Director of ADF Foods Limited since October 1, 2008. Mr. Thakkar has been an Executive Director of ADF Foods, since June 1, 2006. Mr. Thakkar has been associated with ADF Foods Limited. He is a Graduate of Commerce and has completed his Diploma in Export Management. He was sponsored by Trade Development Institute of Ireland for an International Training Programme by Institute for a course in International Business and Marketing Mr. Ashok H. Thakkar has been the Vice Chairman of ADF Foods Ltd. since October 1, 2008. Mr. Thakkar serves as a Director of Mishal International (India) Private Limited, H J Thakkar Property Investment Limited and Lustre Investments Pvt. Limited.

Evaluating M&A Opportunities in Family Owned Business Mr. Bhavesh R. Thakkar serves as President and President of Finance at ADF Foods. Shri. Thakkar has been Executive Director of ADF Foods Limited since October 1, 2008. He serves as Director of Power Brands (Foods) Private Limited and H J Thakkar Property Investment Limited. Brands

Ashoka is the flagship brand of ADF and one of the widest distributed brands in the world. Its range includes ready to eat curries, frozen foods, pickles, condiment pastes, mango pulp/slices, chutneys, papadums, IQF (Individually quick frozen) ready to cook vegetables and microwave rice. The range also extends catering to food service products across Australia, New Zealand, US and UK.

Camel brand is a household name in Iraq, Qatar, Bharain, Saudi Arabia, UAE, Oman and other part of the Gulf as well as Europe and North America. The range of Arabic pickles and curry powders is tailor made for Middle East Diaspora.

Aeroplane is an economy brand of pickles in Middle East. It is a market leader in this segment. In food services it is a leading chutney brand in UK and USA

The authentic range of products was created to suit the palate of Non-Indian customers. It is a premium offering in mainstream stores.

Consists of a range of Olive oil Pickles, traditional pickles and ready to eat curries and mango chutney

Evaluating M&A Opportunities in Family Owned Business Markets ADF food has three manufacturing plants and headquarters in India but serves worldwide markets from US to Middle East to Australia. Either by design or due to competition they are a weak player in Indian market or do not have any significance recognition. The Worldwide map showing their most prominent markets is depicted below in the exhibit.

Financials Financial Statement over last five years and other parameters are present below. As clearly visible that ADF food was growing at a faster pace and the growth has slowed down over last few years. The growth is also comparable with the phenomenal growth as experienced by various Indian companies. Stock Price

Evaluating M&A Opportunities in Family Owned Business Share Price Movement

Share Performance Comparison

Ownership Pattern

Performance Chart

Evaluating M&A Opportunities in Family Owned Business Balance Sheet

Evaluating M&A Opportunities in Family Owned Business Income Statement

Evaluating M&A Opportunities in Family Owned Business Profit & Loss

Evaluating M&A Opportunities in Family Owned Business

Gits Foods Ltd

History Gits was established in 1963, by R H Gilani and M A Tejanis. Gits gets its name from two letters of its founders Gilani + Tejanis. In the first decade of its existence it marketed with dehydrated soup mixes and popular food mixes like Idli, Dosa & Gulab Jamun. In the second decade the second generation of Gits family took over and started focusing on the export markets since the market was limited in India. They also introduced new packaging and new products increasing the product line to nearly 10 products. In the third decade they started advertising on TVs and brand developed a cult following among masses. Also the company starts growing in the Indian market setting up depots across various markets in India. Also the packaging is revamped making it much modern looking generating wider acceptance. In the fourth decade the company started backward integration setting up dairy plant in Pune. They introduced Pure Ghee and Instant dairy powders as new products. In the current decade Gits has started a new manufacturing plant for Ready to Eat food lines and introduced new products in this category. Also the abroad educated third generation takes over the management of the company. Management Gits food which was founded by R H Gilani, M A Tejani are in their third generation of management. Currently three family members Samana Tejani, Sahil Gilani, and Aasiya Tejani are being groomed to run the company, not much information is available outside this. Products Gits Food Products Private Limited (Gits Food Products) manufactures Convenience foods in four categories: Ready Meals, Instant Mixes, Dairy Products and Savories. An example of these is below:

Evaluating M&A Opportunities in Family Owned Business Ready Meals

Instant Mixes

Evaluating M&A Opportunities in Family Owned Business Dairy Products

Savories

Markets The company generates 50% of its revenue from the domestic market. The products are also exported to the American, European and Middle East countries.

Evaluating M&A Opportunities in Family Owned Business

Financials Gits Food Revenues are in the Range of INR 250-500 MM, not much information about profits and a balance sheet is available. In last few years Products have grown at 20% rate that is expected to continue. The company is accredited with ISO 9001: 2000 and ISO 22000 certifications. Gits Food Products is planning to expand its plant capacity and diversify its business in the near future.

Deal Discussion
Comparison to Investment Criteria The food industry as discussed before has been growing at a CAGR of 15% and with Indian economy growing at 8% is expected to continue that growth. In addition the changing food habits of working professionals and changing family structure should support the package food industry especially ready to eat and ready to cook sector for some time to come. Porters 5 force analysis (Economic Moat) Threat of New Entrants (High): The ready to Eat industry does not require any specialization and anybody can enter the industry. Though entering the industry does not mean they will be successful, it will require huge costs to establish a food brand and the supply chain for the ready to eat segment. On the other hand

Evaluating M&A Opportunities in Family Owned Business companies in other food segments like Haldirams can easily add frozen foods and ready to cook and ready to eat foods to their portfolio though it will require brand realignment. Gits has long established itself as the go to brand for the Ready to cook segment and has maintained that image. Any new player trying to replicate that brand recognition and reach will find it difficult to achieve. Brands like Ashoka and Camel are equally well established in US and Middle East markets for Ready to Eat segments and can be difficult to match by sheer marketing muscle. Power of Suppliers (Low): The ingredients of Ready to Eat and Ready to Cook food are staple foods that are commodity items and can be procured from open market; hence the power of suppliers is quite low. Power of Buyers (Low): The buyers of the RTE and RTC products are retail customers that are highly fragmented and do not have any power. Also the diversity of brands available in the marketplace make it even more difficult for any segment of buyers to concentrate, giving them a low power. Availability of Substitutes (Low): The ingredients of Ready to Eat and Ready to Cook food are staple foods that are commodity items and can be procured from open market; hence the power of suppliers is quite low. Competitive Rivalry (High): The ingredients of Ready to Eat and Ready to Cook food are staple foods that are commodity items and can be procured from open market; hence the power of suppliers is quite low. Other Investment Criteria Investment Criteria Controlling or significant interest

Comments While our interview with the Gits owner pointed towards their reluctance towards a complete sale we expect that a clear growth plan showing the benefits of cash and executive management would allow the fund to make a strong case and convince the management to sell a significant stake. For ADF foods they have already shown an inclination to sell the parts of company for the right valuation we expect them to be highly receptive of capital infusion even if it comes at giving up some control.

Historically Established Brand Name

Gits is the oldest brand name in the Ready to Cook category. Every Indian can identify them with the Gits Idli and Halwa. Similarly, Ashoka is a big brand

Evaluating M&A Opportunities in Family Owned Business in US and people identify it with quality food. Big enough opportunity to accommodate 2-3 big players The Indian food industry is expected to grow to $300BN in 2015 from $150BN in 2005. Also the share of Packaged food is expected to increase from current 1.7% of the industry to 3% in 2020. This huge growth in the market place provides a huge opportunity for the market where many more players can play in the market. Value Creation There is a clear value creation strategy through vertical integration and operational improvements. Also there is a clear requirement for financial structure being corrected. Target IRR of 20% We have to do the valuation model right but a target IRR of 20% seems easy to achieve Exit Window in 5-7 years In 5-7 years we expect both of the brands with the right financial structure and operationally efficient as well as being run professionally. At that time the exit paths can be many from an IPO to selling out a multinational brand like Kraft foods.

Value Creation Strategy: When you look at the balance sheet of any family owned business in India the first thing you notice is the absence of debt which is true for the balance sheet of ADF foods too. We do not have financials of Gits foods available but Gits is of similar size as ADF foods and it is a private company so we expect the debt load on Gits to be even lower. On one front it is a good thing because this means that they can sustain their business in bad times but it also shows a lack of sophistication in their approach towards financial management. A well-run company carries certain amount of debt that gives us enough flexibility to service it in times of stress on the same time the debt portion gives it access to cheap capital for important capital investments and growth. Above all the debt helps the company to increase the value of the company by providing the tax shield. We expect that by adding leverage to the A lot of family owned businesses do not report their profits using the secondary accounting systems and thus the question they ask is why do we need debt since we are not reporting the income. But, doing so

Evaluating M&A Opportunities in Family Owned Business harms them even further; having a parallel business in black book decreases the valuation of the company. Once the business has dual accounting systems they miss out on various equity investments that are available in the market that are quite cheap and can provide them a long term growth. Without looking at the books of ADF and Gits foods we cannot make the assumption that this is true. Though, looking at the governance announcements and preferential dividends distributed by ADF foods there is a clear lack of corporate governance in the company. We expect to get proper controls in these companies which will add significant value to these companies. Another way to add value to both Gits and ADF foods is vertical integration and geographic expansion through strategic mergers. If you look at the income statement of ADF foods they have not grown much over last 3 years. The reason for this lack of growth is their absence in Indian market. They are mostly serving markets in US and Middle East which while profitable are not growing at a significant pace. The perfect strategy for ADF foods would be to launch their products at a mass scale in India. For this they need the money to either build the logistics network or acquire someone in India that has the network. Similarly Gits has done great in Ready to Cook segment they have struggled in the Ready to Eat segment. An experienced leader who has already done this at some other company can be a great addition to the Gits management to help them improve their capability. Finally when we talked to the Son of Gits CEO we were shocked to learn that his plan for future for the company for him becoming the CEO and his cousins who have economics and food degrees to become head of finance and production. This clearly pointed to huge agency issues, where the ties of family seem to be dominating the appointments at the top of the company. These appointments while may not be wrong but need to be evaluated with experts and right people need to be appointed at top if we expect these companies to become world leaders.

Seller Rationale: Gits was started 50 years back and is still a small company. They have lost the battle to become a big player in the industry in last 10 years where a lot of new entrants like Khana Khazana, Tasty Bites, Deep Foods have come and left them behind. Once they can see what a private equity fund can bring th their brand and what kind of success it can lead them to they will be more than happy to see the company they founded to become a global brand. Similarly ADF foods are more than 47% owned by the Thakkar family who would be extremely happy to get money for capital investments to improve the growth of their company. They tried to get some growth equity from Shroders in October 2007 for a 15% stake and it has helped them to grow tremendously but in last few years their growth has stalled (due to recession in

Evaluating M&A Opportunities in Family Owned Business developed markets) and they would be looking to raise additional funds to grow in emerging markets especially in India.

Exit Strategy: There are three ways we expect to exit the packaged food business. Frist is the route of public markets. Indian primary market was extremely hot few years back and has suffered tremendously in last few years. The continued growth and improving economy is already pointing towards improving markets, but we expect Indian equity market to be completely recovered in 5-7 years providing an attractive exit opportunity for these companies to go public. Another way to exit this business would be selling to the other multinational companies looking to grow in India. Kraft foods recently acquired Cadburys brand and is looking to grow in Indian market. Similarly other European and American companies are looking as India as a vehicle towards growth. A cleaned company that is profitable is run professionally and has all its books in order will be extremely attractive to all these companies and will provide an attractive outcome for the buyout. Finally there are always other funds that are looking to buy a company in a niche segment to add to their portfolio company and this route can also provide an attractive exit for the fund.

Deal Structure
Valuation To do the valuation of the companies we could have used various analysis techniques like DCF analysis, Industry Comparable and EBITDA Multiples.

First step in valuation was to determine how we will value Gits foods? For this analysis we looked the the sister company we have analyzed in the paper ADF foods. Both companies are in similar business Ready to Eat/Ready to Cook. Both of them are pure plays in this segment and mostly sell in overseas markets. Finally the revenue of ADF foods at INR 100-120 crores is similar to approximate revenue of Gits Foods at INR 80110 crores. Since we have financials of ADF foods and not the financials of Gits foods we can use the valuation of ADF foods to be representative of Gits foods.

Second step is to do the valuation of ADF foods. For this we used the multiples approach. Nearly all funds and private equity companies use this approach since this is the easiest way to compare prices across various deals and does not suffer from the overload of estimating the discount rate and the perpetual

Evaluating M&A Opportunities in Family Owned Business growth rates. To get the multiples we looked at the recent transactions that have happened in the Food industry in the Indian market. Recent Transactions Collecting data from the industry was a difficult process and we were helped in this process by the partner at Venture East Raghu Mendu. The data we used transactions from 2007 to 2012. The 5 year data ensured that we covered most aspects of the economy and it did not suffer from the bias of any economic cycle.

First we collected the entry multiples of various transactions by dividing them in various buckets based on the stage of the company that was involved in the transaction. For our company ADF foods we looked at the PIPE deal data (Private Investment in Public Equity), since it is a public company getting private investment. To be on the conservative side we used an entry multiple of 16X of EBITDA. ADF Foods did get an injunction of Equity from Schroders in October 2007 (Appendix 3). At that time the company was valued using a EBITDA multiple of 7.45 at $31.3 MM (INR 150 crores approx.). ADF foods and the Ready to Eat food segment has come a long way since then and has grown tremendously. Using an EBITDA multiple of 16X is more in line with the current market conditions.

Entry Multiples Stage Early and Growth Stage Buyout Deals Late Pre IPO PIPE Revenue X 5.7x 2.4x 4.0x NA 2.8x EBITDA X 56.8x 25.8x 21.7x NA 15.8x PAT X 179.9x 40.7x 77.6x NA 32.1x

Second we looked at the Exit multiples. In this case we suffered from lack of transaction data. While we were able to few exits through the public IPO route the data appeared suspect since the multiples were much lower than the entry multiples. We could not find any data for the other exit routes and hence decided to use the entry multiple and 1 point higher multiple in our analysis.

Exit Multiples

Evaluating M&A Opportunities in Family Owned Business Type IPO Public Market Sale Secondary Sale Strategic Sale Revenue X 2.3 7.55x NA NA EBITDA X 13.6 NA NA NA PAT X 23.5 NA NA NA

All the data used in the above table is presented in the Appendix.

Company Valuation To do the valuation we used the LBO approach. We assumed that we will be able to buy the entire company and use the leverage to finance the deal. A lot of companies in India especially the traditional family owned are not prepared for a complete sale this approach was required to value the company correctly. If the negotiations lead to an equity investment the valuation needs to be adjusted accordingly. Transaction Assumptions The First step in valuation was the basic assumptions to execute the transaction. The firs assumption is the EBITDA assumption as stated above we used a 16X multiple for that. Adding the outstanding debt and excluding the case the effective multiple came out to be 16.8X
Transaction Assumptions Current EBIDTA Offer Multiple 26.14 16

Offer Value + Short-term debt (inc. CPLTD) + Long-term debt + Preferred + Minority interest - Cash & equivalents Transaction Value Transaction Multiples Transaction Value / Sales Transaction Value / EBITDA Transaction Value / EBIT Credit stats Debt / EBITDA EBITDA / Interest (net) Pro Forma 5.0x 1.3x

418.2 0.0 24.0 0.0 0.0 (4.0) 438.2 Pro Forma 3.73x 16.8x 20.3x Year 1 4.3x 1.5x Year 2 3.5x 1.8x

Evaluating M&A Opportunities in Family Owned Business Ratio Assumptions The Second step in valuation was assumptions around profitability and growth. For growth we assumed a uniform growth rate of 12%. Indian economy has been growing at a pace of 8-10% over last few years and is expected to continue that pace. Above that Ready to eat segment has grown at a CAGR of 15% over last few years so we felt comfortable with a 12% growth rate. For Gross margins we used the margins of 2011 and added a 1% improvement in margins for the calculated years. Since we are exiting the company in Year 5 the gross margins will top out at 46.3%

Ratios & Assumptions Sales growth Gross margin SG&A as % of Sales EBITDA margin EBIT margin Tax rate

Pro Forma 42.3% 20.0% 22.3% 18.4%

Year 1 12.0% 42.3% 20.0% 22.3% 19.9% 30.0%

Year 2 12.0% 43.3% 19.9% 23.4% 21.0% 30.0%

Year 3 12.0% 44.3% 19.8% 24.5% 22.2% 30.0%

Projected years Year 4 Year 5 12.0% 12.0% 45.3% 46.3% 19.7% 19.6% 25.6% 26.7% 23.4% 24.5% 30.0% 30.0%

Year 6 12.0% 47.3% 19.5% 27.8% 25.7% 30.0%

Year 7 12.0% 48.3% 19.4% 28.9% 26.9% 30.0%

Year 8 12.0% 49.3% 19.3% 30.0% 28.1% 30.0%

Sources and Uses of Funds The Final step in valuation of the company is the sources and usage of funds. To finance the deal we raised INR 130 crore in debt and made an equity investment of nearly INR350 crore. This is a big equity commitment but the high interest rates on the debt make it nearly impossible to leverage more without losing the operational. Our total Cost to buy the company is INR 477.2 crore

Sources Cash Senior debt Subordinated debt Sponsor's equity Total sources

Amount 1.00 78.4 52.3 345.5 477.2

Percent 0.2% 16.4% 11.0% 72.4% 100.0% Percent 87.6% 5.0% 7.3% 100.0%

Interest 18.0% 14.0% 3.0 3.0x 2.0x Minimum cash level Senior debt / EBITDA Subordinated debt / EBITDA

Uses Amount Purchase of equity 418.2 Refinancing of existing debt 24.0 Transaction expenses 35.0 Total uses 477.2

Evaluating M&A Opportunities in Family Owned Business Exit Valuation Once we have put all the values in the model we were able to project the cash flows and the debt pay down schedule. This helped us to calculate the EBITDA of the companies in the projected years. This projected EBITDA allowed us to value the company at the time of exit using various multiples.
Projected years Year 4 Year 5 47.2 55.2 658.0 705.2 752.4 808.8 864.0 919.1

Year 1 Year 2 EBITDA 29.3 34.4 Implied equity value @ EBITDA multiple of: 15.8x 337.3 425.6 16.8x 366.6 460.0 17.8x 395.9 494.4

Year 3 40.4 531.4 571.8 612.1

Year 6 64.3 987.5 1,051.9 1,116.2

Year 7 74.9 1,197.9 1,272.8 1,347.8

Year 8 87.1 1,444.7 1,531.8 1,618.9

IRR Sensitivity Analysis The last step in valuation of the company is to calculate the IRR of the investment and see if it meets our investment criteria. We did the exit IRR calculations at two exit multiples. At 16.8X exit multiple (similar to entry multiple) we will hit our IRR targets while exiting in Year 5 if we can buy the company for 16.5X or lower multiple at the time of entry. If we plan to exit in year 6 we will be able to achieve our target return in most of the scenarios.
IRR Returns 16.8x 14.00 14.50 15.00 15.50 16.00 16.50 17.00 17.50 18.00 Year 4 19.5% 20.1% 20.0% 19.8% 19.7% 19.5% 19.4% 19.3% 19.2% 19.1% Year 5 20.1% 20.8% 20.6% 20.4% 20.3% 20.1% 20.0% 19.9% 19.7% 19.6% Year 6 20.4% 21.1% 20.9% 20.7% 20.5% 20.4% 20.2% 20.1% 20.0% 19.9%

At 17.8X exit multiple (+1 to entry multiple) we will hit our IRR targets in 100% of the scenarios exiting in year 4 5 or 6.

Evaluating M&A Opportunities in Family Owned Business

IRR Returns 17.8x 14.50 15.00 15.50 16.00 16.50 17.00 17.50 18.00 18.50 Year 4 21.5% 22.1% 21.9% 21.7% 21.5% 21.3% 21.1% 20.9% 20.8% 20.6% Year 5 21.6% 22.2% 22.0% 21.8% 21.6% 21.4% 21.3% 21.1% 20.9% 20.8% Year 6 21.6% 22.2% 22.0% 21.8% 21.6% 21.4% 21.2% 21.1% 20.9% 20.8%

Looking at the final numbers we feel confident that an investment in either Gits foods or ADF foods we should be able to achieve our investment criteria in most of the economic conditions under most of the scenarios. The model has done the analysis using most conservative assumptions and if we can achieve efficiency gains better than the conservative numbers financially this should be a win for the fund doing the buyout of the company.

Evaluating M&A Opportunities in Family Owned Business

Health and Wellness Industry

Increasing health awareness has led to a noticeable shift in the attitude of people towards healthier lifestyle, better medicines, natural therapies and better food alternatives. Consumers are becoming more proactive in finding ways for ensuring better health and overall well-being, with the result that the Indian market is witnessing a growing demand for the industry serving this segment. It is hardly surprising then that both Indian and international manufactures of health products are finding a ready market for their products given the growing consciousness and demand. In fact, these companies are targeting the increasingly prosperous middle class consumers who are recording the highest consumption of calcium supplements, foods for cholesterol control, diabetes, heart care, etc. This concern is also being driven by the escalating cost of medical care, given the surge in chronic diseases such as hypertension, diabetes, obesity, coronary heart disease, etc., due to changing lifestyles and eating habits. Health and Wellness industry can be defined in a narrow range of healthy living and eating, but in the context on India there is much more than health living. Access to world class pharmaceutical products is one such step. The second step is access to Vitamins and Supplements that promote healthy living. Also in line with the tradition of India Herbal & Ayurveda plays a big role and industries in this realm play a big role in Natural Organic healthy living life. The Health and wellness industry can be divided in these various segments: Pharmaceuticals India's pharmaceutical sector is currently undergoing unprecedented change. Much of this is due to the country's introduction, on January 1, 2005, of a system of product patents; before that, only patents for processes were permitted to be issued, a fact that has been instrumental in the domestic industry's huge success as a worldwide exporter of high quality generic drugs. The Indian pharmaceuticals market had total revenues of $10.9 billion in 2010, representing a compound annual growth rate (CAGR) of 17.5% for the period spanning 2006-2010. In comparison, the Chinese and Japanese markets grew with CAGRs of 18.5% and 3.4% respectively, over the same period, to reach respective values of $43.1 billion and $90.9 billion in 2010. The performance of the market is forecast to decelerate, with an anticipated CAGR of 13.3% for the fiveyear period 2010-2015, which is expected to drive the market to a value of $20.3 billion by the end of 2015. Comparatively, the Chinese and Japanese markets will grow with CAGRs of 15.9% and 3.5% respectively, over the same period, to reach respective values of $90.2 billion and $107.9 billion in 2015. This sector

Evaluating M&A Opportunities in Family Owned Business represents a huge opportunity but big MNCs are already stepping in the playing field, recent Sales of Ranbaxy and Piramal health care are examples to show how big MNCs are dominating this industry. Herbal & Ayurveda Drugs India has the worlds oldest as well as largest tradition of systems of medicine. The Indian Systems of Medicine includes the systems originated in India as well as outside but got adopted in India in course of time. Indian herbal market is one of the fastest growing market and may attain to INR 14,500 crore (INR 145,000 million) by 2012 and exports to INR 9,000 crore (INR 90,000 million) with a CAGR of 20% and 25% respectively, according to findings of the Associated Chambers of Commerce and Industry of India (Assocham). This is one of the highly unorganized sectors with a lot of small shops and manufacturing plants producing various products. Lack of codification and big brands have also lead to this splintering of the market. Outside capital that can combine these small segments and create a global brand can go a long way in making this a worldwide successful brand. Vitamins & Supplements Maintaining a healthy body and strong immune system was on the minds of urban Indian consumers towards the end of the review period while the outbreak ofH1N1 flu highlighted general well-being and immunity-building products in 2009, urban air pollution due to large-scale construction projects, prolonged monsoons and extra cold winters ensured that this consumer sentiment remained strong in 2010. A rising incidence of other diet-related health problems, including obesity, chronic indigestion and cardiac problems also resulted in greater demand for vitamins and dietary supplements towards the end of the review period. Vitamins and dietary supplements grow 14% in 2010 to reach INR 33 billion Child-specific vitamins and dietary supplements most dynamic with increase of 63% Amway India Enterprises extends lead in 2010 to value share of 21% Vitamins and dietary supplements predicted to see constant value CAGR of 7% over forecast period. All this makes this segment an attractive segment to penetrate and conquer. Amway usually sells products at the high range of prices so if we can come up with a high quality and reputable Vitamin and dietary supplemental brand it will go a long way to capture the market. Fortified Foods & Healthy Beverages Health-conscious consumers are looking for products with additional benefits and nutrients such as proteins, vitamins and minerals and now even omega-3, which offer significant health benefits. They are also opting for naturally healthy beverages such as green tea and 100% juices instead of carbonates. Better for you products on the other hand are not perceived as particularity healthy since many people

Evaluating M&A Opportunities in Family Owned Business equate them as being just a little less unhealthy than their regular counterparts instead of thinking them to be healthier. Due to the nature of the industry, no domestic player has achieved significant national status when considering health and wellness in India. There are many minor players with products ranging across different categories. There are a large number of small players who have presence in niche categories as well as large national players that lead a particular subcategory only. For example, Hindustan Lever Ltd leads sales in reduced fat soup; Nestle India leads high fiber noodles; and GlaxoSmithKline Consumer Healthcare leads fortified/functional hot drinks. Small sales base aside, due to increased consumer awareness and growing health concerns, health and wellness food and beverages in India are expected to grow at a healthy rate. New launches suited to Indian tastes and easily affordable will further drive growth in the health and wellness industry. This is an extremely high growth and high potential industry but this is a secondary market for a lot of primary industries that make auxiliary products, like Packaged Food industry, Herbal industry and the vitamin industry and hence to establish in this industry (with a brand name) one needs to establish itself in one of the auxiliary industries first before making a foray in this segment.

Study Focus
In this study we focused on the Herbal & Ayurveda industry only. Changing societal trends in India are having a major impact on Indians consumers life styles and finding solutions in the Herbal arena can go a long way to help the consumers to have a healthy living: 1. Unhealthy eating habits and stress has increased the rate of sickness and other lifestyle diseases. India has the largest population of diabetic patients. While there are drugs and pharmaceuticals that provide temporary relief. Access to these is expensive and is not pervasive. Finding a herbal drug that can solve these lifestyle problems has a huge market potential. 2. Traditionally local homeopathic shops and local Wiseman have provided these drugs and cars. Movement of people to new locations have resulted in frayed social bonds and having a company that is reliable and can provide these day to day natural drugs can go a long way in improving the quality of life. 3. The secondary market of fortified foods and healthy beverages flows naturally from the herbal industry once you have established a natural leader in the industry.

Evaluating M&A Opportunities in Family Owned Business

Competitive Landscape

Dabur India Ltd. is India's largest Ayurvedic medicine supplier and the fourth largest producer of FMCG. It was established in 1884, and had grown to a business level in 2003 of about 650 million dollars per year, though only a fraction of that is involved with Ayurvedic medicine. Last year, about 15% of sales volume was pharmaceuticals, the remaining 85% were mostly non-medicine items such as foods and cosmetics. Dabur's Ayurvedic Specialities Division has over 260 medicines for treating a range of ailments and body conditionsfrom common cold to chronic paralysis. These materials constitute only 7% of Dabur's total revenue (thus, less than 50 million dollars). Dabur Chyawanprash (herbal honey) has a market share of 70% and chewable Hajmola Digestive Tablets has an 88% share. Other major products are Dabur Amla Hair Oil, Vatika (Shampoo), and Lal Dant Manjan (Tooth Powder).

Sri Baidyanath Ayurvedic Bhawan Ltd. (Baidyanath for short) was founded in 1917 in Calcutta, and specializes in Ayurvedic medicines, though it has recently expanded into the FMCG sector with cosmetic and hair care products; one of its international products is Shikakai (soap pod) Shampoo. Baidyanath has a sales volume of about 350 million dollars, but most of the product sales are in the cosmetic range. The company reported to have over 700 Ayurvedic products, made at 10 manufacturing centers, with 1,600 employees. Included items are herbal teas, patent medicines, massage oils, and chyawanprash.

Zandu Pharmaceutical Works was incorporated in Bombay in 1919, named after an 18th-century Ayurvedic. The company focuses primarily on Ayurvedic products (in 1930, pharmaceuticals were added, but the pharmaceutical division was separated off about 30 years later). However, today Zandu has a chemicals division and cosmetics division. Its total sales volume is about 45 million dollars. One of its current projects is to develop a dopamine drug from a plant extract, applying for new drug status in the U.S.

Evaluating M&A Opportunities in Family Owned Business The Himalaya Drug Company was established in 1934 in Bangalore. It currently has a business level of about 500 million dollars and has a U.S. distribution division (Himalaya USA). It is known in the U.S. for the product Liv-52, marketed as a liver protector and therapy for liver diseases like viral hepatitis; the product was first marketed in India in 1955.

Charak Pharmaceuticals was founded in 1947, and currently has three distribution centers in India; it produces liquids, tablets, and veterinary supplies. It has gained a large advantage with its new product Evanova, a preparation containing 33 herbs and minerals and non-hormonal active ingredients used as a menopause treatment alternative to HRT. Soya is one of the main ingredients in this product. The product also contains Ayurvedic herbs that act like selective estrogen receptor modulators as well as asparagus root (shatavari), which reduces the frequency and intensity of hot flashes.

Vicco Laboratories was established in 1958. It mainly produces topical therapies based on Ayurveda and is best known internationally for its toothpaste product, Vajradanti, which has been marketed in the U.S. for more than 25 years.

The Emami Group, founded in 1974, provides a diverse range of products, doing 110 million dollars of business annually, though only a portion is involved with Ayurvedic products, through its Himani line; the company is mainly involved with toiletries and cosmetics, but also provides Chyawanprash and other health products.

Hamdard
History Hamdard (Wakf) Laboratories, one of Indias largest Health & Wellness Company, was set up in 1906 in the small by-lanes of the historic old Delhi The Hamlard story began when Hakim Hafeez Abdul Majeed started his Unani clinic at Old Delhi's Lal Kuan In 1908. He called the clinic Hamdard to signify "sympathy for all." Profit was not his not his motive.

Evaluating M&A Opportunities in Family Owned Business In1922, aged 39, he left behind two young sons a fledging company and much goodwill. AbdulHameed,14, and Mohammed Said, an infant then. Who turned it into a multinational firm. They converted Hamlard

Dawakhana into a trust -- Hamlard National Foundation --in1948. The company today is one of the largest OTC healthcare companies in India with over 600 OTC & ethical products including household brands like RoohAfza, Safi, Cinkara, Roghan Badam Shirin. It boasts of one of the largest Unani GMP certified and ISO 9001 facilities in the world. Hamdard has grown into an institution devoted to provide health to all through promotion and development of Unani. A premier pharmaceutical house with a nationalist inspiration and a total indigenous base, Hamdard stands as a mission committed to serve the benefit the society. The company aims at touching life at various aspects of human welfare by way of imparting health education, conducting research on the therapeutics and drug of natural medicine, extending philanthropic services through the Hamdard National Foundation. Management Hamdard makes effective medicines at affordable prices and reinvests all the profits into charitable activities. Currently Hamdard is run by the great grandsons of Hakim Hafeez, Mr Hamid Ahmed is 24 and Mr Asad Mueed is 27. Both have management degrees from foreign universities. While Mr Ahmed is responsible for marketing, his first cousin Mr Mueed heads the research and development department. Products Hamdard is identified with one product across the country RoohAfza. The product contributes narly 40% of revenues for the company. Together with Safi and Rogan Badam Shirin three products contribute to nearly 60% of the revenues. Over last few years Hamdard has aggressively trieed to launch natural medicines like LIPOTAB, a 100% natural formulation for managing cholesterol problems and JIGREEN a clinically tested 100% natural product for treatment of liver disorders including Hepatitis but these have to still contribute significantly to the revenues. The company is planning to launch several new products under Nature Wonder range over the next 2 years.

Evaluating M&A Opportunities in Family Owned Business

Markets Hamdard serves mostly the local markets and have not actively tried to expand to overseas markets. During Partition Hamdard was divided into two companies one in Pakistan and one in India. The Hamdard in Pakistan does serve the Middle Eastern market partially but not that effectively. In last few years Hamdard has tried to expand in the South Asian market but lack of focused marketing and professional approach has ensured that company has not achieved much success in this endeavor. Financials Since Hamdard is privately held company there is not much information available about the revenues and profits for the company. In 2007 Hamdards revenues were INR 300 crore and they were targeting a revenue of INR 500 crore by 2011 but there is no available information that they achieve this.

Evaluating M&A Opportunities in Family Owned Business In 2007 they launched a four pronged strategy of introduction of new products, entry into new geographies, regaining former strongholds and brand extension of hero brands. The plan was to leverage the strong pipeline of researched and patented formulations to offer unique products. Additonally, Hamdard planned to mass market many of its patented formulation, so far retailed through the limited traditional Unani channels. In 2007 Hamdard has restructured its portfolio into three categories - Consumer products (including brands such as RoohAfza, Roghan Badam Shirin, Sualin, Chyawanprash, Pachnol), OTC products (brands like Safi, Cinkara, Joshina) and Traditional products (Non OTC). In 2007, the consumer products contributed 45%, and the share of OTC and traditional products was 35% and 20% respectively.

Amruntanjan

History AMRUTANJAN DEPOT began as a Patent Medicine business in 1893 at Bombay (Mumbai). The Head Quarters of Amrutanjan Depot shifted to Madras (Chennai) later. It became a Public Limited Company in 1936 with the name of "AMRUTANJAN LIMITED" which markets a wide range of OTC Health Care Products. Its products have earned very good brand equity. The company started with making a single product pain Balm. Since then it has diversified and morphed into a full health and wellness product company. Currently the company manufactures Pain products, congestion products and health foods. They also have a hospital that is purely focused on managing pain and pin like symptoms of patients. The company also markets of Gelax and Anchor brands of Isabgol with M/s Unjha Formulations. Amrutanjan has two subsidiaries Amrutanjan Leasing & Finance Ltd & Amrutanjan Fine Chemicals Ltd.

Evaluating M&A Opportunities in Family Owned Business In 2004 company closed its printing and packaging arm, Egattur Printing and Packaging Ltd to focus solely on the health and wellness sector. In 2007 company changed its name from Amrutanjan Ltd to Amrutanjan Health Care Ltd. Management Name A Satish Kumar D Seetharama Rao H B N Shetty Hema Pasupatheeswaran K Kannan Pasumarthi S N Murthi S Sambhu Prasad S Sambhu Prasad S Sriram Shiranee Pereira Products Pain Management Pain management is the oldest product line for Amrutanjan. They still make a simple Rub balm for headache. In addition to that they have recently added Body Ache pads, Joint Muscle Pain Spray and Rollon for immediate pain relief. Designation Director Director Director Secretary General Manager (Finance) Director CEO Chairman and Managing director Compliance Officer Addnl. & Ind.Director

Evaluating M&A Opportunities in Family Owned Business

Congestion Management Wuhoo! Relief is a natural remedy to fight against congestion. It is gentle on skin and absorbs faster. Small quantity of Wuhoo! Relief provides best care for childs cough and cold.

Health Care Management Amrutanjan makes dermal ointments and Corn Caps to provide quick soothing action for achieving soft feet. It has Ayurvedic medicine that is quick acting and provides long lasting relief. Amrutanjan also makes Hand Sanitizer in the form of NoGerms that is available in various pack sizes.

Evaluating M&A Opportunities in Family Owned Business

Food & Beverages The fast growth in Indian consumable goods sector has prompted other companies to move in this sector too. The Food & Beverage division of Amrutanjan is in the same direction and does not go well with their other business products. Fruitnik: Fruitnik is a juice drink is made out of concentrate available in Apple, Grape & Mango flavors. Kitchen Delights are ready to Eat Indian food packs that are trying to emulate other companies, but they are extremely small in this segment.

Markets

Amrutanjan products are available in Gulf, Africa, South East and Asian countries. They are planning to enter the US and European markets in coming years.

Evaluating M&A Opportunities in Family Owned Business Financials

CARE Specialized Pain Management Center: In 2011 Amrutanjan launched a new division under the name of Amrutanjan Pain Management Center also known as CARE Specialized Pain Management Center. It is Chennai''s first and only comprehensive pain management center. CARE Specialized Pain Management Center caters to treatment of various kinds of pain - right from chronic headaches, joint aches and migraines to carpel tunnel syndrome, Complex Regional Pain Syndrome and cancer related pains, just to name a few. The center houses the latest in technology, central and locally acting treatments and minimally invasive procedures from around the world, helping patients benefit from the best pain management and treatment regimes. Amrutanjan Pharmaessense Private Limited: In May 2011, the division, Pharmaessense Chemistry Services Division, was transferred to a wholly owned Subsidiary Company viz., Amrutanjan Pharmaessense Private Limited with all its assets and liabilities, excluding land. Stock Price

744.55
-9.40 (-1.25%)BSE : Mar 07, 17:00
Open High Low Prev. Close Bid Price Quantity 744.55 550 753.95 Vol 761.4 52 Week 738.5 52 Week 753.95 Offer 0 0 11796 996.8 610

Evaluating M&A Opportunities in Family Owned Business Share Price Movement

Share performance Comparison

Evaluating M&A Opportunities in Family Owned Business Balance Sheet

Balance Sheet ------------------- in Rs. Cr. ------------------Mar '11 Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities 3.03 3.03 0 0 99.89 0 102.92 23.63 3 26.63 129.55 Mar '11 Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs)
Source : Dion Global Solutions Limited

Mar '10

Mar '09

Mar '08

Mar '07

3.03 3.03 0 0 94.38 0 97.41 1.26 0 1.26 98.67 Mar '10

3.1 3.1 0 0 90.72 0 93.82 0.21 0 0.21 94.03 Mar '09

3.2 3.2 0 0 22.25 0 25.45 6.47 2 8.47 33.92 Mar '08

3.2 3.2 0 0 19.99 0 23.19 7.69 0 7.69 30.88 Mar '07

40.26 10.34 29.92 2.37 68.41 8.54 11.63 4.55 24.72 12.35 15.32 52.39 0 19.41 4.12 23.53 28.86 0 129.56 6.44 339.68

24.15 8.58 15.57 6.75 49.99 7.31 10.23 8.38 25.92 9.19 15.66 50.77 0 16.08 8.32 24.4 26.37 0 98.68 10.16 321.5

24.72 8.81 15.91 2.29 0.43 5.31 12.94 67.11 85.36 6.77 0.4 92.53 0 11.67 5.45 17.12 75.41 0 94.04 6.65 302.5

33.53 14.25 19.28 2.59 0.43 9.4 7.6 2.32 19.32 5.58 0.38 25.28 0 12.19 1.45 13.64 11.64 0 33.94 3.18 79.54

25.44 12.88 12.56 2.71 0.11 8.86 4.96 2.97 16.79 4.25 4.86 25.9 0 9.43 0.97 10.4 15.5 0 30.88 4.62 72.47

Evaluating M&A Opportunities in Family Owned Business Income Statement

Yearly Results ------------------- in Rs. Cr. ------------------Mar '11 Sales Turnover Other Income Total Income Total Expenses Operating Profit Profit On Sale Of Assets Profit On Sale Of Investments Gain/Loss On Foreign Exchange VRS Adjustment Other Extraordinary Income/Expenses Total Extraordinary Income/Expenses Tax On Extraordinary Items Net Extra Ordinary Income/Expenses Gross Profit Interest PBDT Depreciation Depreciation On Revaluation Of Assets PBT Tax Net Profit Prior Years Income/Expenses Depreciation for Previous Years Written Back/ Provided Dividend Dividend Tax Dividend (%) Earnings Per Share Book Value Equity Reserves Face Value
Source : Dion Global Solutions Limited

Mar '10 89.77 6.05 95.82 77.2 12.57 -----1.59 --18.62 0.03 20.18 1.26 -18.92 7.11 11.81 -----38.98 -3.03 94.38 10

Mar '09 90.66 6.96 97.62 77.3 13.36 -----80.75 --20.32 0.15 100.91 1.48 -99.43 6.57 92.86 -----299.39 -3.1 90.72 10

Mar '08 74.55 0.34 74.89 62.79 11.76 ------1.27 --12.1 0.69 10.14 1.47 -8.67 3.68 4.99 -----15.59 -3.2 22.25 10

Mar '07 72.39 0.83 73.22 57.04 15.35 ------3.36 --16.18 0.38 12.44 1.52 -10.92 5.01 5.91 -----18.48 -3.2 19.99 10

103.41 4.5 107.91 90.05 13.36 --------17.86 0.24 17.62 1.92 -15.7 6.24 9.46 -----31.2 -3.03 -10

Evaluating M&A Opportunities in Family Owned Business Profit & Loss

Profit & Loss account ------------------- in Rs. Cr. ------------------Mar '11 Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses 41.45 1.22 15.92 1.08 27.42 3.12 0 90.21 Mar '11 Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs)
Source : Dion Global Solutions Limited

Mar '10

Mar '09

Mar '08

Mar '07

107.95 4.35 103.6 4.1 0.46 108.16

93.87 3.99 89.88 7.1 1.87 98.85 33.37 0.88 14.2 0.72 27.42 1.82 0 78.41 Mar '10 13.34 20.44 0.42 20.02 1.26 0 18.76 0.15 18.91 7.11 11.81 45.04 0 4.55 0.77 30.3 38.98 150 321.5

96.2 5.37 90.83 87.42 -3.05 175.2 33.1 0.7 10.94 1.11 26.4 1.54 0 73.79 Mar '09 13.99 101.41 0.62 100.79 1.48 0 99.31 0.07 99.38 6.51 92.86 40.69 0 18.01 3.06 31.02 299.39 570 302.5

85.78 11.11 74.67 0.11 1.26 76.04 30.59 1.24 9.41 0.45 20.89 2.21 0 64.79 Mar '08 11.14 11.25 1.18 10.07 1.47 0 8.6 0.04 8.64 3.65 4.99 34.21 0 2.24 0.38 32 15.59 70 79.54

82.91 10.31 72.6 -3.04 0.86 70.42 27.63 1.05 8.98 0.51 17.57 1.78 0 57.52 Mar '07 15.94 12.9 0.84 12.06 1.52 0 10.54 0.21 10.75 4.77 5.91 29.89 0 1.92 0.29 32 18.48 60 72.47

13.85 17.95 0.63 17.32 1.77 0 15.55 0.3 15.85 5.17 10.68 48.76 0 4.44 0.73 30.3 35.24 150 339.68

Evaluating M&A Opportunities in Family Owned Business

Deal Discussion
Comparison to Investment Criteria Up to 80% of people in India use either Ayurveda or other traditional and herbal medicines. The Indian herbal market is one of the fastest growing market and may attain to INR14,500 crore ($30 Billion) by 2012 and exports to INR 9,000 crore ($18 Billion) with a CAGR of 20% and 25% respectively Porters 5 force analysis (Economic Moat) Threat of New Entrants (Low): Six out of Seven companies that hold the largest market share are more than 50 years old. It is extremely difficult to build a brand and penetrate this market for new entrants. There is also lot of intellectual property and knowledge required to release effective products. Power of Suppliers (Low): The ingredients of Ayurveda and herbal medicines are from natural resources which can be grown in the tropical climate of India and can be accessed easily and cheap if required making the power of suppliers quite low. Power of Buyers (Low): The buyers of the Ayurveda and herbal products are retail customers that are highly fragmented and do not have any power. Although categorized as medicinal, the distribution channels are not restricted to chemist shops and can be availed through regular mom and pop shops which is the norm in India. Local grocers can carry the brands. Also the diversity of brands available in the marketplace makes it even more difficult for any segment of buyers to concentrate, giving them a low power. Availability of Substitutes (Low): There are not too many substitutes available to replace products catering to specific needs. For example a pain balm (a.k.a. ointment/lotion) is offered only by few brand name companies so substitutes cannot be made available easily Competitive Rivalry (High): Competition within this space is not very high since the products in the markets are few within each category and markets are distributed within the few companies mentioned above. Other Investment Criteria Investment Criteria Controlling or significant interest

Comments Since Amrutanjan is a publicly traded company with 52% distributed in the public markets and 48% within the promoters it would be possible to pick up a majority from both the market and the promoters. And getting a significant stake should not be an issue. On the other hand Hamdard is

Evaluating M&A Opportunities in Family Owned Business owned by two brothers and is run for nonprofit purposes so acquiring the significant stake in the company might prove slightly difficult. Historically Established Brand Name Amrutanjan is the oldest brand name in the Ayurvedic world. The company started in 1800s and went public in 1936. Every Indian can identify them with the pain killers. Similarly more than half of Indians in Northern India grew up drinking RoohAfza and put Hamdard brand in high regards. Big enough opportunity to accommodate 2-3 big players The Indian herbal market is one of the fastest growing market and may attain to INR 14,500 crore ($30 Billion) by 2012 and exports to INR 9,000 crore ($18 Billion) with a CAGR of 20% and 25% respectively This huge growth in the market place provides a huge opportunity for the market where many more players can easily play in the market. Value Creation There is a clear value creation strategy through vertical integration and operational improvements. Also there is a clear requirement for financial structure being corrected. For Hamdard the case is even stronger where the focus on charity rather than business has resulted in company not realizing its full potential. Target IRR of 20% We have to do the valuation model right but a target IRR of 20% seems easy to achieve Exit Window in 5-7 years In 5-7 years we expect both of the brands to be with the right financial structure and operationally efficient as well as being run professionally. At that time the exit paths can be many from an IPO to selling out a multinational brand like Nature made

Evaluating M&A Opportunities in Family Owned Business or someone like Natura from Brazil.

Value Creation Strategy: When you look at the balance sheet of any family owned business in India the first thing you notice is the absence of debt which is true for the balance sheet of Amrutanjan too. We do not have financials of Hamdard available but Hamdard is of similar size as Amrutanjan and it is a private company so we expect the debt load on Hamdard to be even lower. On one front it is a good thing because this means that they can sustain their business in bad times but it also shows a lack of sophistication in their approach towards financial management. A well-run company carries certain amount of debt that gives us enough flexibility to service it in times of stress on the same time the debt portion gives it access to cheap capital for important capital investments and growth. Above all the debt helps the company to increase the value of the company by providing the tax shield. We expect that by adding leverage to the A lot of Family owned businesses does not report their profits using the secondary accounting systems and thus the question they ask is why we need debt since we are not reporting the income. But, doing so harms them even further; having a parallel business in black book decreases the valuation of the company. Once the business has dual accounting systems they miss out on various equity investments that are available in the market that are quite cheap and can provide them a long term growth. Without looking at the books of Amrutanjan and Hamdard we cannot make the assumption that this is true. We expect to get proper controls in these companies and making these controls public will bring confidence to investors and add significant value to these companies. Another way to add value to both Amrutajan and Hamdard is vertical and geographical expansion through strategic mergers. If you look at the income statement of Amrutanjan they have not grown much over last 3 years. The reason for this lack of growth is their absence in International market. They are mostly serving markets in India which while profitable is not growing at a significant pace. The perfect strategy for Amrutanjan would be to launch their products at a mass scale in the international markets. For this they need the money to either build the logistics network or acquire or align with someone in US and International markets that has the network. Other than the pain segment Amrutanjan has really struggled in the other segments. An experienced leader who has already done this at some other company can be a great addition to the Amrutanjan management to help them improve their capability. For Hamdard whatever we say is not enough. It has been run by two brothers over last 50 years where clear lack of any proper management in clearly visible in the brand growth. A new focused management that has

Evaluating M&A Opportunities in Family Owned Business experience in launching the companies from ground up can do great things for the Hamdard brand as a whole.

Seller Rationale: Both Amrutanjan and Hamdard were started more than 100 years back and are still a small company. They have lost the battle to become a big player in the industry in last 10 years where a lot of new entrants like Organic India, Himalaya products have come and left them behind. Once they can see what a private equity fund can bring to their brand and what kind of success it can lead them to they will be more than happy to see the company they founded to become a global brand.

Hamdard has over 1,200 products and a legacy of famous grandfathers, both have a famous brand but marketing it in modern times will be a different ball game altogether. "The biggest challenge is to transform Hamdard into a vibrant organization which can keep pace in the rapidly changing environment," says Mr. Ahmed one of the Grandsons of the founders. The young blood at Hamdard, however, strongly believes that the organization needs to be made more market savvy. "We have changed our motto from `there is a Hamdard trust, so there is business' to `there is business, so there is a Hamdard trust." Ahmed also goes on to add "Hamdard has to be transformed into an organization which can respond quickly to a changing market and environment," It's a tough call since the organizations character and style of functioning have been like typical of charitable trust. A corporate culture is lacking. So is the marketing talent. "There are grey areas in the organization. We are on the lookout for talented people in marketing department. We need major improvements in our sales force and advertising strategy," he adds.

Exit Strategy: There are three ways we expect to exit the Herbal and Ayurveda sector. Frist is the route of public markets. Indian primary market was extremely hot few years back and has suffered tremendously in last few years. The continued growth and improving economy is already pointing towards improving markets, but we expect Indian equity market to be completely recovered in 5-7 years providing an attractive exit opportunity for these companies to go public. Another way to exit this business would be selling to the other multinational companies looking to grow in India. Companies like Nature made and others would love to penetrate the Indian markets as well as utilize their manufacturing and sourcing facilities. A cleaned company that is profitable is run professionally and

Evaluating M&A Opportunities in Family Owned Business has all its books in order will be extremely attractive to all these companies and will provide an attractive outcome for the buyout. Finally there are always other funds that are looking to buy a company in a niche segment to add to their portfolio company and this route can also provide an attractive exit for the fund.

Deal Structure
Valuation Similar to approach in the Food section we used a two-step process to value both the companies. First step in valuation was to determine how we will value Hamdard? For this analysis we looked the sister company we have analyzed in the paper Amrutanjan Healthcare Ltd. Both companies are in similar business Herbal medicines and health and wellness sector. Both of them are mostly pure plays in this segment. Though Amrutanjan has tried to get into Ready to Eat segment using the Fruitnik brand they are extremely small in this segment and do not generate much revenue from the food segment. Finally the revenue of Amrutanjan at INR 100-110 crore is much smaller compared to INR 300-400 crore of revenues of Amrutanjan we believe that the companies are so similar that all the numbers can be extrapolated linearly to get the valuation of Hamdard.

Second step is to do the valuation of Amrutanjan Ltd. For this we used the multiples approach similar to the approach we used while valuing the company in the food industry. To get the multiples we again looked at the recent transactions that have happened in the Food industry in the Indian market. Recent Transactions The data we used transactions from 2007 to 2012 and is provided by Venture East. Again the 5 year data ensured that we covered most aspects of the economy and it did not suffer from the bias of any economic cycle. First we collected the entry multiples of various transactions by dividing them in various buckets based on the stage of the company that was involved in the transaction. For our company Amrutanjan we looked at the PIPE deal and used an entry multiple of 17X of EBITDA.

Evaluating M&A Opportunities in Family Owned Business Entry Multiples Stage Early &Growth Buyout Deals Late Pre IPO PIPE Revenue X 13.6x 26.4x 5.3x 1.5x 2.9x EBITDA X 23.5x 88.5x 32.9x 5.6x 17.1x PAT X 190.2x 414.8x 55.3x 49.3x 24.3x

Second we looked at the Exit multiples. In this case we had better luck in getting the data compared to food industry but we still lacked information about exits through PIPE stream. Others provided a wide range of exit multiples from 7.85X to 40.41X. Hence similar to food industry we decided to use the entry multiple and 1 point higher multiple in our analysis.

Exit Multiples Type IPO Public Market Sale Secondary Sale Strategic Sale Revenue X 2.64x 7.55x 2.33x 6.46x EBITDA X 10.17x NA 7.85x 40.41x PAT X 17.88x NA 20.81x 62.05x

All the data used in the above table is presented in the Appendix.

Company Valuation To do the valuation we used the LBO approach. We assumed that we will be able to buy the entire company and use the leverage to finance the deal. A lot of companies in India especially the traditional family owned are not prepared for a complete sale this approach was required to value the company correctly. If the negotiations lead to an equity investment the valuation needs to be adjusted accordingly.

Evaluating M&A Opportunities in Family Owned Business Transaction Assumptions The First step in valuation was the basic assumptions to execute the transaction. The firs assumption is the EBITDA assumption as stated above we used a 17X multiple for that. Adding the outstanding debt and excluding the case the effective multiple came out to be 18.1X
Transaction Assumptions Current EBIDTA Offer Multiple 17.95 17.5

Offer Value + Long-term debt + Preferred + Minority interest - Cash & equivalents Transaction Value Transaction Multiples Transaction Value / Sales Transaction Value / EBITDA Transaction Value / EBIT Credit stats Debt / EBITDA EBITDA / Interest (net) Pro Forma 5.0x 1.3x

314.1 26.6 0.0 0.0 (16.2) 324.6 Pro Forma 3.00x 18.1x 20.1x Year 1 4.3x 1.5x Year 2 3.3x 1.9x

Ratio Assumptions The Second step in valuation was assumptions around profitability and growth. For growth we assumed a uniform growth rate of 12% similar to food industry. Indian economy has been growing at a pace of 8-10% over last few years and is expected to continue that pace. Above that Health and wellness industry is growing even at a faster pace over last few years so we felt comfortable with a 12% growth rate. For Gross margins we used the margins of 2011 and added a 1% improvement in margins for the calculated years. Since we are exiting the company in Year 5 the gross margins will top out at 49.8%. Most of these Ayurveda medicines have huge margins and hence assuming 50% gross margin is very much in line with the ground reality.

Evaluating M&A Opportunities in Family Owned Business

Projected years Year 4 Year 5 12.0% 12.0% 48.8% 49.8% 28.9% 28.8% 19.9% 21.0% 18.9% 19.9% 30.0% 30.0%

Ratios & AssumptionsPro Forma Sales growth Gross margin 45.8% SG&A as % of Sales 29.2% EBITDA margin 16.6% EBIT margin 15.0% Tax rate

Year 1 12.0% 45.8% 29.2% 16.6% 15.9% 30.0%

Year 2 12.0% 46.8% 29.1% 17.7% 16.8% 30.0%

Year 3 12.0% 47.8% 29.0% 18.8% 17.8% 30.0%

Year 6 12.0% 50.8% 28.7% 22.1% 21.0% 30.0%

Year 7 12.0% 51.8% 28.6% 23.2% 22.1% 30.0%

Year 8 12.0% 52.8% 28.5% 24.3% 23.2% 30.0%

Sources and Uses of Funds The Final step in valuation of the company is the sources and usage of funds. To finance the deal we raised INR 87.8 crore in debt and made an equity investment of nearly 272.8 crore. This is again a big equity commitment but the high interest rates on the debt make it impossible to increase on leverage. Our total Cost to buy the company is INR 375.8 crore
Sources Amount Cash 13.18 Senior debt 53.9 Subordinated debt 35.9 Sponsor's equity 272.8 Total sources 375.8 Uses Amount Purchase of equity $314.1 Refinancing of existing debt 26.6 Transaction expenses 35.0 Total uses 375.8 Percent 3.5% 14.3% 9.6% 72.6% 100.0% Percent 83.6% 7.1% 9.3% 100.0% Interest 14.0% 18.0% 3.0 3.0x 2.0x Minimum cash level Senior debt / EBITDA Subordinated debt / EBITDA

Exit Valuation Once we have put all the values in the model we were able to project the cash flows and the debt pay down schedule. This helped us to calculate the EBITDA of the companies in the projected years. This projected EBITDA allowed us to value the company at the time of exit using various multiples.
Projected years Year 4 Year 5 Year 6 33.9 40.0 47.2 526.1 560.0 593.8 651.7 691.7 731.8 800.7 847.9 895.1

Year 1 Year 2 Year 3 EBITDA 20.1 24.0 28.6 Implied equity value @ EBITDA multiple of: 17.1x 260.1 333.1 420.9 18.1x 280.2 357.1 449.5 19.1x 300.3 381.1 478.0

Year 7 55.5 976.4 1,031.8 1,087.3

Year 8 65.1 1,182.9 1,248.0 1,313.1

Evaluating M&A Opportunities in Family Owned Business IRR Sensitivity Analysis The last step in valuation of the company is to calculate the IRR of the investment and see if it meets our investment criteria. We did the exit IRR calculations at two exit multiples. At 18.1X exit multiple (similar to entry multiple) we will hit our IRR targets while exiting in Year 5 or 6 in 100% of the cases.
IRR Returns 18.1x 16.00 16.50 17.00 17.50 18.00 18.50 19.00 19.50 20.00 Year 4 19.7% 20.0% 19.9% 19.8% 19.7% 19.6% 19.5% 19.5% 19.4% 19.3% Year 5 20.5% 20.8% 20.7% 20.6% 20.5% 20.4% 20.3% 20.2% 20.1% 20.0% Year 6 20.8% 21.1% 21.0% 20.9% 20.8% 20.7% 20.6% 20.5% 20.4% 20.4%

At 19.1X exit multiple (+1 to entry multiple) we will hit our IRR targets in 100% of the scenarios exiting in year 4, 5 or 6.
IRR Returns Year 0 19.1x 16.00 16.50 17.00 17.50 18.00 18.50 19.00 19.50 20.00 21.5% 21.9% 21.7% 21.6% 21.5% 21.3% 21.2% 21.1% 21.0% 20.9% Year 0 21.8% 22.3% 22.1% 22.0% 21.8% 21.7% 21.6% 21.4% 21.3% 21.2% Year 0 21.9% 22.3% 22.2% 22.0% 21.9% 21.8% 21.6% 21.5% 21.4% 21.3%

Looking at the final numbers we feel confident that an investment in either Hamdard or Amrutanjan Healthcare Ltd. we should be able to achieve our investment criteria in most of the economic conditions under most of the scenarios. The model has done the analysis using most conservative assumptions and if we can achieve efficiency gains better than the conservative numbers financially this should be a win for the fund doing the buyout of the company.

Evaluating M&A Opportunities in Family Owned Business

Fund Raising Opportunities

Raising money for emerging markets has become relatively easy in current market compared to market conditions ten years back. Though, distress in last few years has resulted in most of the institutions and investors withdrawing their money from emerging markets. The appetite for investing in emerging markets is returning and a lot of new funds are flowing again in India and Brazilian markets.

To invest in Family owned business in India a fund manager can approach many channels. At first he can start from the traditional channels like Family offices of Wealthy Families, Endowments and Pension funds. All these avenues are looking to diversify their portfolio holdings and investing in the emerging markets can provide an attractive opportunity and provide good diversification. Though these channels have already been tapped by big PE firms like Blackstone, Carlyle and Apax to invest in the emerging present and any new raise especially for a smaller fund would be extremely difficult, though the fund should still try to raise money from these.

Another avenue is IFC (international Financial Corp). IFC has a mandate to invest in emerging and developing markets especially in funds that are looking to improve the life quality of the masses there. IFC also is not looking for extremely high IRR returns that might be the focus of the private investors. Though, a funding from IFC requires quarterly portfolio reporting and some other accounting overheads.

Third option for the fund might be raising funds from big conglomerates that are looking to invest in emerging markets. Recently Cisco, Intel and other big companies have become investors in various funds in India and a new fund can definitely look at these big companies to raise the money.

A fourth option can be getting funded from the state & private banks in India. ICICI ventures have been an active player in the deal market and a lot of other banks are looking to profit from the PE deal making. These banks lack the sophistication for PE investments and would be happy to make investments with other funds.

The best option for a new fund might be do a deal by deal investing. This path involves finding a deal doing the due diligence and finally either selling this opportunity to a bigger firm or raise fund for the specific opportunity.

Evaluating M&A Opportunities in Family Owned Business

Conclusion
Indian achieved its independence 67 years back. In these decades India has grown from a colony of British Empire to one of the most important countries in the World. Over this time family owned business have played an important role in the story of India. Currently Family-run businesses currently account for a whopping 95 per cent of all Indian companies.

In the new decade if India wants to achieve the dream, India needs to move to the next phase of growth; growth that is all inclusive and is based on professional approach. The time has come for Indian economy to thank family protagonists and move the businesses towards a new era. To achieve this India needs to create world class corporations that are run professionally and have long term approach. Current family owned businesses in India think very short term and reward family ties much more than meritocracy.

A fund that can merge these family owned business can convert them to professional organizations can bring this change. A professional team can solve a lot of problems that face family owned businesses. They can: Bring International experience and Business acumen to family owned businesses Improve Business controls and processes Create a long term view Merge small companies to create economies of scale Provide enough capital to grow the business according to demand

While most industries in India can serve as an attractive platform to invest we selected two industries that can provide an easy path to India and superior returns. The selection was based on a lot of factors like: Fragmentation in the market, existing competition, prospects available for the merger, potential for the industry and finally global potential for the industry. We recommend investing in one or both of these sectors for high double digit IRR. Food & Food Processing Industry: With a huge size of the $280 BN (2015) the food processing industry is characterized by a vast majority of players with any single player lacking in size to dominate it. This makes it a perfect sector to look for consolidation/acquisition play and achieve economies of scale. The two companies that seem to be great for acquisition are ADF Foods ltd or GITS where we can achieve exit multiples of 16.8-17.8X giving us IRR close to 20%.

Evaluating M&A Opportunities in Family Owned Business Alternatively we can also look at investing in Health & Wellness Industry: Similar to food processing industry Health & Wellness industry has a huge market size and is also characterized by a vast majority of players with any single player lacking in size to dominate it. This also makes it a perfect sector to look for consolidation play and achieve economies of scale. The two companies who seem to be great for acquisition in this sector are Amrutanjan or Hamdard where we can achieve exit multiples of 18-19X giving us IRR close to 20%. With the international markets in the recovery mode and investors getting more open to investing in the emerging markets it is the right time for a new fund to start this process. We recommend opening a Fund and investing in any or both of the above sectors and get a piece of the exciting growth in one of the only English speaking BRIC nation. This process if executed successfully will not only generate superior double digit returns for the investors but will do so with minimal risk.

Evaluating M&A Opportunities in Family Owned Business

Bibliography
www.Wikepedia.com World in 2050 http://www.pwc.com/gx/en/world-2050/the-accelerating-shift-of-global-economicpower.jhtml Venture East www.gitsfiids.com: Company Information www.adf-foods.com: Company Information www.moneycontrol.com : Financial Statements www.amrutanjan.com Company Information www.fruitnik.com DataMonitor Various Data Reports www.Economictimes.com, various articles in Hamdard Road Blocks in Enhancing Competitiveness in Family-Owned Business In India, Dr. Ritu Bhattacharyya

Evaluating M&A Opportunities in Family Owned Business

Appendix
Appendix 1: Interviews with Industry & PE companies Administrative Information: Interviewer: Abhishek Agarwal, Pat Patel Date of Interview: March 15th, 2012 Interviewee Information: Name : Sahil Gilani Organization (name, size): Gits Food Products Pvt Ltd. State & City: Mumbai, India Role: Owner No of Years in the role: Lifetime Sectors Asked: FMCG Current State: Gits History Started by Grand Father who was running (Vyapaar publisher) as the chief editor of this paper. There he met Mr. Tejani who was the freelancer and used to get the ads for the paper at that time. When GiTs was formed Gilani became CEO and Tejani became the Chairman. Central Food Technological Research Institute (CFTRI), Mysore, initially developed the technology for soups and this technology was used initially by Gits to start the business. Since there was no concept of ready to eat food in India at that time Gits had a rocky start. A lot of shopkeepers thought that the soup was Powdered Soap and did not understand what Soup meant. So the business did not take off very well. After initial struggles they, went back to roots and redid the Idli and Gulab Jamun ready to cook foods which started their business and got them success. Initially there was not much market in India so they started exporting currently Gits is exporting to 35 markets. More recently the local market has grown bigger than the international market and they are focusing more on it. Sahil is in IE business school doing his MBA major in Entrepreneurship and marketing. Will finish the business school and go back to India to run the business. Aunt (Sister of Dad) has 3 daughters who with Sahil will be taking over the business. Sales & Marketing will be run by Sahil. Younger Daughter is a Food Science major and taking over the production & R&D. Middle daughter is an Economics major and will be looking after Finance. The current second generation with uncle and dad are working hard to grow the business. Dad Gilani will be attending a course at Harvard in summers. Gits was a leading brand in India at one point being a early pioneer in RTE and RTC segment. While it has grown over the years bigger brands have taken over the market share., do you think there is a potential for them to be relevant again? Is yes how?

Evaluating M&A Opportunities in Family Owned Business Food sector in India is hot because of dual income families growing. Maids are going away because more job opportunities available to them. Positive demographics also help to support ready to cook segment. Retail boom is coming to India thus increasing point of sales and hence increasing the growth expectations. Everybody is growing due to this rapid growth and it is hard to loose in the current market.

Do you think Fast food or traditional food is the segment to go with? Yes, Traditional food segment Do you think there are issues with size and scale? Are there supply chain problems that can be fixed? Yes Supply chain is a big deal. Distribution is much difficult because of lack of supply chain. Kirana stores dominate the market and hence the foreign companies will have hard time to setup the distribution. A lot of companies are bought out due to distribution sake. Gits has 22 depots across India to do the supply chain effectively, extremely widespread. Core Competence is the quality and hence they do not want to enter a product line that they cannot shake up. Do you think vertical integration can bring more efficiency? To a certain extent but gaining expertise in the other segments of the vertical industry can be difficult. Gits set up a dairy because they were facing issues due to lack of quality milk powder. But they found overhead costs are too high because of lack of scale. Currently Gits is in the phase of getting rid of it. Running a Dairy is not their Core competence and hence they are having difficulty in running it. Do you know some firms that are doing it already and effectively? Tasty Bite Demand: Do you think there is enough demand for Indian brands that are at the international standards? Yes Are people more enamored with International brands thus charging premium for domestic brands might be difficult? Big brands coming in actually have grown the segment and hence it usually has helped the Gits brand.

Competitors:

Evaluating M&A Opportunities in Family Owned Business There are already big multinational and local firms doing well in India and have captured the most market. Do you think for more potential competitors? Nestle, Heinz and ITC have tried and have failed, Gits has been a market leader for ever. Do you think there are already chains that you can collaborate with in FMCG sector? Supply chain of Gits is strong enough but we can still collaborate with retailers.

Deal Information: What types of companies are getting acquired Companies that have great brand and are not dedicated towards growing and innovation should sellout. How successful have these mergers been? The biggest problem between PE industry and the Family owned companies is the lack of trust. PE companies buy a minority stake and then try to divide the family so they can take over the entire business. Family owned businesses are looking for a more collaborative relationship with the PE firms that have not happened.

Future Do you think there will be big enough market in India in Future to support atleast 7-10 big players? Yes, the growth is helping traditional brands much more What do you think the growth rate would be? Rapid growth How long do you say think it will to reach a more mature and slow growth market? For a decade or more

Evaluating M&A Opportunities in Family Owned Business Administrative Information: Interviewer: Abhishek Agarwal Date of Interview: February 27th, 2012 Interviewee Information: Name : Raghuveer Mendu Organization (name, size): Venture East State & City: Los Angeles, CA, Bangalore India Role: Partner in the Venture Fund No of Years in the role: 16 Years Sectors Asked: FMCG & Pharmacy Deal Information: M&A activity in the area There is not much M&A activity going on in this area due to reluctance of owners to sell their businesses. TVS capital was formed to look at family owned but did not find enough resources. Landmark book store was one of the few deals they executed but nothing much after that. A fund focused in this sector needs to go broader. What types of companies are getting acquired Very few and it is not much easy to start. Currently there are very few companies available and this trend is not expected to change. How successful have these mergers been? MTR is one of the families that is building it up by taking money from the other firms. They actually sold majority of their Ready to Eat business to Norway's Orkla for approximately $100MM. Though taking over might be difficult but putting the money Part of executing your deal in India is lining up the ducks. Make sure you have 2-3 year runway is available. Getting on the playing the field show that you can Finally to define success you need to define then look at the success metrics the business owners are looking once you have matching metrics then reach out for a deal. How likely are family owned businesses to put themselves up for sale? o What is the process like? o How large is that market? o How do folks generally learn about such opportunities? At individual level there is not clarity whether they will sell. Even if the children are not interested other nephews can be interested. How are deals getting financed in India?

Evaluating M&A Opportunities in Family Owned Business Mostly equity financing. Raiding in Dollar is better idea for debt rather than locally. Especially doing a dollar denominated debt now would be a great idea. Entry multiples and exit multiples for different kind of exits Will provide data is a Separate Excel. Usually to price an Indian business Triangulate the price based on three factors 1) How Much Cash I want to put 2)how much I can grow and 3)how much profit can I make. If the Family is seeing the growth scenario then it pricing has to be calculated on future metrics, though In the end the most important criteria is how much cash you want to put up. In how many cases they bring in external management? NA How much increase in marketing (as % of sales) happens after acquisition it varies on deal by deal basis Food Industry: There are many brands in India that were big but are struggling to become relevant in New India like Narulas (Pizza shop), Priya Achar, ok Wafers, do you think there is a potential for them to be relevant again? Copper chimney has grown but the question is how big they can grow and whether is an exit. Till you know the individuals it is hard to answer. Psychological shift of families when will happen Do you think Fast food or traditional food is the segment to go with? Eating chains and Packed Foods both have significant opportunities. Tea brands are also for sale (poultry) there is a huge opportunity; Consumerism is growing with Double income. Are there supply chain problems that can be fixed? Yes there are we have invested in a Vada Pav company in Mumbai that is more of a logistics play rather than anything else. Do you think vertical integration can bring more efficiency? NA Do you know some firms that are doing it already and effectively? Finding the right deal and the execution is important. Dominos is a master franchise and owns all the stores. TVS capital has done another pizza chain , less of taking local brands but more of people starting a new brand. Barbeque is another chain that is trying. Logistics is imp.

Pharma Industry: What do you think about current status of Pharma sector in India (Drug Delivery, Testing services etc)

Evaluating M&A Opportunities in Family Owned Business Current state needs a lot of investment we tried one such investment on Pharma side (medicine shoppe) that did not work because of two reasons: 1) Creating standard quality across cities was difficult 2)The cold chain was another big problem. Do you think there are issues with size and scale? Big cities seem to have some solution to the problem the problem is bigger in Semi-rural and Tier 2. Setting up supply chain in these cities becomes complex due to a lot of moving parts. The overall investment in each unit did also does not make sense since the costs are much higher than the potential revenues if not done right. Finally it is extremely important for the pharma companies to be profitable at the per-unit level. Are there supply chain problems that can be fixed? Supply chain especially Cold chain is a huge issue in Pharma Sector and if you can fix it effectively at a reasonable price point there is money to be made in the sector. The biggest issue is the lack of local knowledge and here where collaborating with local family owned business can be a big boon. Do you think vertical integration can bring more efficiency? NA Do you know some firms that are doing it already and effectively? Medi-plus and Apollo Pharmacy have done it effectively but they are focused on the Large cities. For tier2 cities there is no successful candidate yet. Future Do you think there will be big enough market in India in Future to support atleast 7-10 big players? Yes What do you think the growth rate would be? Current growth rates are expected to continue though Politics plays an important role at various times. Currently look at infrastructure companies they have lost their valuation due to political paralysis being at the top. Once the elections are done the economy is expected to continue to grow and infrastructure companies recover in valuation. How long do you say think it will to reach a more mature and slow growth market? Thinking of J curve we are not sure which part of curve we are.

Evaluating M&A Opportunities in Family Owned Business Administrative Information: Interviewer: Abhishek Agarwal Date of Interview: March 4th, 2012 Interviewee Information: Name : Associate at a big PE firm in India (Cannot disclose Name) Organization (name, size): Big PE firm State & City: Mumbai, India Role: Associate No of Years in the role: 4 Years Sectors Asked: General PE scene in India

M&A activity in the area of Family Owned Business in India The deal activity in this area is increasing. Previously most of the PE activity in India was limited to supplying development capital and management expertise but that is changing fast. The Indian market is moving towards maturity, there were very few deals from Family owned businesses previously but that is also changing now. What types of companies are available for the deals There are two kind of Family owned businesses that are coming to the market. A lot of businesses that were started in Early 1990s have their founder wanting to retire and exit. Second type of businesses are the traditional family owned businesses where the children of the family do not want to continue in the business of their parents and hence the current owners are selling out. Currently 70% of Apax deal pipeline is for buyout of the business. How successful have these mergers been? The deals for Apax have been extremely successful. Their investment in Apollo Hospitals and Apollo Pharma has given handsome returns. What is your IRR for Indian market? Our expected IRR is 25% but that changes from deal to deal. For IT deals and low risk investments that can be much lower. Our Hurdle rate from LPs is 8%. How are deals getting financed in India? Since we have done most of the deals as part of development capital the deals have been mostly equity based. What types of companies are you interested in?

Evaluating M&A Opportunities in Family Owned Business We usually buy Debt of the operating company. Outside that we put money behind Retail & Consumer, media and telecom sectors. We also try to invest in plug and play business which ensures that the margins are very slim Return on Capital is not that great. How do you value the family owned business in light of books being a suspect? Once we are looking to do a deal and have signed an NDA, we hired KPMG to go over the financials and create a separate set of financials. Once the financials are prepared we used these cleaned numbers to value the business.

Evaluating M&A Opportunities in Family Owned Business Appendix 2: LBO Transactions Details
Date Target Company Buyer Ranbaxy Laboratories Ltd Zydus Cadila Mylan Laboratories Alembic Ltd Metropolis Health Services FMCG 27-Jan-05 Besta Cosmetics 27-Jan-05 Balsara Home Products 27-Jan-05 Balsara Hygiene Products 14-Jun-06 Nutrine Confectionery Co. 12-May-06 Trident Sugars 04-Jul-07 Leela Scottish Lace 18-Oct-07 LNJ Apparel 04-Jul-04 Stewarts & Lloyds of India 11-Dec-08 Paterson Investment and Cons 29-Oct-06 Kerala Minerals and Metals 04-Jul-07 SLS Power Industries 06-Mar-06 C G Smith software 04-Feb-06 Spectrum Infotech 18-Jan-09 S Tel 26-Sep-06 Essar Spacetel 01-Dec-06 Travel Corporation 24-May-07 Sri Venkateswara Udyog Dabur India Dabur India Dabur India Godrej Beverages and Foods Rajshree Sugars and Chem Others Bombay Rayon Fashions Bombay Rayon Fashions Indian Oiltanking Ltd Amas Bank ISRO Bhoruka Power Corporation KPIT Cummins Larsen & Toubro Ltd (L&T) Bahrain Telecom Hutchison Essar Thomas Cook India Ltd H&R Johnson India 38 5.64 N/A N/A 21.1 20 8.63 0 225 6 41.16 ` 100 100 54.9 40 N/A 100 100 100 49 100 100 50 N/A N/A N/A N/R N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/R N/A N/A N/A N/A N/A N/A N/A N/A 459.18 6 41.16 8.63 38 75% debt 5.64 100% debt 4.1 7.79 26.67 56.61 15.21 97.9 100 99.4 100 100 4.51 0.2 42.16 1.59 1.34 4.62 17.11 N/A 13.27 9.49 4.19 7.79 26.83 56.61 13.77 Deal Value USD (mn) Healthcare 03-Oct-07 Zenotech Laboratories 16-Mar-07 Liva Healthcare 08-Jan-07 Matrix Laboratories 31-Jan-06 Dabur Pharma (Non-Oncology) 05-Aug-05 Gribbles Pathnet 54.07 N/A 756.2 353 N/A 38 97.5 71.5 100 100 25.07 N/A 3.64 N/A N/A 147.04 N/A 17.9 N/A N/A 1057.62 142.29 Stake % Deal Deal Value/EBITD Target's Mkt Debt Value/Sales A Value (mn) Financing

Evaluating M&A Opportunities in Family Owned Business Appendix 3: FMCG Entry Deal Data

Buyout
Valuation Stake Deal Value($M) ($M) (%) 31 10 10 38.8 14.3 10.5 20.2 80 70 95 74 1.52 Revenue EBITDA PAT Multiple Multiple Multiple Stage 2.21 Buyout Buyout Buyout Buyout Buyout

Date

Company

Sector Res taura nts Pers onal Ca re (Cos meti cs ) Proces s ed Foods

Investors Evers tone Evers tone Indi a Equi ty Pa rtners

Aug-08 Bl ue Foods Dec-07 Faces Cos meti cs Feb-11 Innova ti ve Foods

Oct-05 Ma rs Res ta ura nts Res taura nts Na vi s Capi ta l Res taura nts (Fas t Ja n-06 Ni rul as Foods ) Na vi s Capi ta l Nutri ne Confecti onery Jun-06 Compa ny Confecti onery IIML (South Indi an Indi a Equi ty Jun-11 Sagar Ratna Cui s i ne) Pa rtners Skygourmet Sep-04 Cateri ng Ca teri ng (Ai rl i ne) Na vi s Capi ta l

20.22 30.28 39.2 77.27 74 3.33 25.82

Buyout 40.73 Buyout Buyout

PIPE Date Company Sector Proces s ed Foods (Dry Frui ts ) Beverages (Wi ne) Investors Schroders Rel i a nce Capi ta l Na vi s Ca pi tal , Others Deal Valuation Stake Value($M) ($M) (%) 4.7 1.71 75 5 500.0 1 3.68 20.97 31.3 17.2 15 9.93 Revenue EBITDA PAT Multiple Multiple Multiple Stage 1.46 2.02 7.45 6.69 15.05 PIPE 13.75 PIPE PIPE 27.86 PIPE

Oct-07 ADF Foods Apr-05 Inda ge Vi ntners Indi a Hos pi ta l i ty Dec-07 Corp Jyothy Ma y-11 La bora tori es

Jul -11 Uni ted Breweri es

Res taura nts Hous ehol d Ca re (Fa bri c Whi teners ) MCa p Fund Ca pi tal Internati onal , Beverages (Li quor) Others

63

2,669.5

2.36

4.21

28.03

71.9 PIPE

Evaluating M&A Opportunities in Family Owned Business

Valuation Stake Deal Value($M) ($M) (%) 4 3.25 15.4 6.9 26 47.06 Revenue EBITDA PAT Multiple Multiple Multiple Stage Growth Earl y

Date

Company Ba kers Ci rcl e Ja n-06 Indi a Ja n-09 Bra nd Ca l cul us

Sector Food Ingredi ents (Ba kery Products ) Res taura nts Ca teri ng (Food Del i very To Offi ce Workers ) Proces s ed Foods Proces s ed Foods

Investors Gem Indi a Advi s ors Hel i on Ventures

Apr-07 Cal ori eCa re Feb-07 Cal yps o Foods Apr-06 Capi ta l Foods

Hel i x Inves tments Q Inves tments

0.26 3 6 2.5

2.5 9.1 24.0 8.8

10.22 33 25 28.5

8.68

Earl y Growth Growth

Evers tone Bra hma Feb-10 Cobra Indi a n Beer Bevera ges (Beer) Ma na gement Sequoi a Capi ta l Oct-11 Faa s os Res taura nts (QSR) Indi a Ventures , Bevera ges (Energy Ca tamara n Ma r-11 Hector Bevera ges Dri nk) Ventures , Others Feb-11 Indi a n Cookery Aug-07 Jun-06 Jul -08 Oct-10 Nov-07 TVS Ca pi ta l Dra per Inves tment Kaa ti zone Res taura nts Co. Gem Indi a Ma s on & Summers Bevera ges (Li quor) Advi s ors (North Indi a n Footpri nt Ma s t Kal a nda r Cui s i ne) Ventures (North Indi a n Footpri nt Ma s t Kal a nda r Cui s i ne) Ventures Res taura nts Mocha (Coffee Pub) Beacon Indi a Res taura nts Pa ckaged Foods (Pota to Chi ps & Na mkeens ) Bevera ges (Wi ne) Evers tone Sequoi a Capi ta l Indi a Res taura nts

7.21

Growth-PE Earl y

Earl y Earl y Earl y

2.5 1 2.04

41.7 4.3 6.3

6 23.11 32.37 7.38 4.36 45.28

Earl y 102.48 Earl y Earl y Growth

Dec-11 Pi nd Ba l l uchi

4.6

9.4

49

38

73.44 Growth

Ma y-11 Pra kas h Snacks Jul -07 Sul a Vi neyards Sep-05 Sul a Vi neyards Nov-05 Tra k Servi ces Ma r-07 Uni bi c Indi a Ma r-08 Uni bi c Indi a Dec-06 Yo Chi na

45 11 3.5

70.3 55.0 10.6 -

64 20 33 26

1.3

Growth-PE Growth Growth Growth Growth Growth

Evers tone, Others Gem Indi a Bevera ges (Wi ne) Advi s ors Res taura nts (Chi nes e) GEM Indi a Pa ckaged Foods (Bi s cui ts ) Li ghthous e Pa ckaged Foods (Bi s cui ts ) Li ghthous e Res taura nts Matri x Partners (Chi nes e) Indi a

2.5

5.5

Earl y

Evaluating M&A Opportunities in Family Owned Business

Late Date Apr-06 Apr-08 Jul -06 Ja n-07 Company Amal ga ma ted Bea n Coffee Amal ga ma ted Bea n Coffee Amal ga ma ted Bea n Coffee As i an Hea l th And Nutri Foods Sector Res taura nts (Coffee Pub) Res taura nts (Coffee Pub) Res taura nts (Coffee Pub) Proces s ed Foods Proces s ed Foods Proces s ed Foods Proces s ed Foods Proces s ed Foods Proces s ed Foods Proces s ed Foods Res taura nts Res taura nts Pa ckaged Foods Investors IFC Da rby Overs ea s Inves tments Sequoi a Capi ta l Indi a SAIF Evers tone Future Ventures Future Ventures Future Ventures Gol dma n Sa chs Moti l a l Os wa l Verl i nves t ICICI Venture IIML Bra hma Ma na gement 30.53 16.7 4 2.27 11.11 10 10 11.2 12.25 24.5 50 35.4 28.24 8.16 33.3 12 10 5 15 14 150.0 62.4 305.3 10 22.44 20 10 3.62 37.31 24.5 40.81 5.97 Valuation Stake Deal Value($M) ($M) (%) 5 25 20 8 1 8.6 11.66 2.5 200.0 10 Revenue EBITDA PAT Multiple Multiple Multiple Stage La te La te La te La te 8.56 La te La te 157.91 La te La te La te La te La te 134.03 La te La te La te La te La te La te La te La te La te La te

Ma r-09 Capi ta l Foods Aug-11 Capi ta l Foods Feb-10 Capi ta l Foods Oct-11 Capi ta l Foods Ja n-07 Cremi ca Sep-10 Cremi ca Feb-12 Cui s i ne As i a Devyani Ma y-11 Interna ti ona l Godrej Beverages Ma r-06 and Foods

Feb-10 Iceberg Indus tri es Bevera ges (Beer) Ma r-07 Imperi al Spi ri ts Jul -08 Imperi al Spi ri ts Ma r-11 John Di s ti l l eri es Ma npa s and Aug-11 Bevera ges Aug-11 Mocha Dec-10 Om Pi zza & Ea ts Sep-07 Ori enta l Cui s i nes

Bevera ges (Li quor) Li ghthous e Bevera ges (Li quor) Li ghthous e Bevera ges (Li quor) Bevera ges (Frui t Jui ces ) Res taura nts (Coffee Pub) Res taura nts (Pi zza) Res taura nts Ga ja Ca pi tal SAIF Beacon Indi a , Others TVS Ca pi ta l Peepul Ca pi ta l Wa yza ta Inves tment Pa rtners SAIF Verl i nves t Acti s SEAF Undi s cl os ed Ches s Capi ta l StanChart PE

Sep-10 SH Kel kar & Co. Speci a l i ty Dec-07 Res ta urants Nov-10 Sul a Vi neyards SuperMa x Ma r-11 Corpora ti on Ma y-11 Tropi l i te Foods Feb-09 Undi s cl os ed Feb-08 US Pi zza Va run Beverages Jul -11 Interna ti ona l

Di vers i fi ed Res taura nts Bevera ges (Wi ne) Pers onal Ca re (Sha vi ng Bl ades ) Food Ingredi ents Res taura nts (Pi zza) Bevera ges (Soft Dri nks Bottl er)

21.39 20 15 125 4 15 37.5 56

76.4 100.0 100.0 416.7

28 20 15 30

1.39

6.18

9.84 La te La te La te

2.34

La te La te La te

76.5 1,120.0

49 5

La te La te

Evaluating M&A Opportunities in Family Owned Business Appendix 4: Pharma Entry Deal Data

Buyout Deals Deal Value($ Valuatio Stake M) n ($M) (%) 8.88 19.9 19 44.4 9.7 26.2 25.3 91.81 76 75 Revenue EBITDA X X PAT X 47.7 9.05 22.4 76 100.91

Date

Company

Ma r-10 Bea ms Indi a Di wa n Cha nd Ma r-10 Medica l Servi ces Oct-09 Meda ll

Sector Da yca re Surgery Center

Investors Ambit Pra gma As ia n Hea lthca re Fund Peepul Ca pita l Ha l cyon Group ICICI Venture ICICI Venture

Di a gnos ti cs Di a gnos ti cs Hos pita l Ja n-11 Ra di a nt Li fe Ca re Ma na gement Jun-07 Ra di a nt Res ea rch CRO Pha rma ceuti ca l s Sep-05 RFCL (Fine Chemi ca ls )

414.81

33

39.3

84

Pre IPO Deal Value($ Valuatio Stake M) n ($M) (%) 1 2.5 23 11 27.8 173.6 248.1 264.4 3.6 1.44 9.27 4.16 Revenue EBITDA PAT Multiple Multiple Multiple 1.45 5.64 49.33

Date

Company

Sector Pha rma ceuti ca ls Pha rma ceuti ca ls Di a gnos tics Di a gnos tics

Investors IFCI Ventures Volra do Ventures Avi go Ca pita l Sa bre Ca pi ta l

Oct-10 Ma rck Bi os ci ences Feb-06 Plethi co Pha rma Super Rel i ga re Apr-11 La bora tori es Super Rel i ga re Ma y-11 La bora tori es

Evaluating M&A Opportunities in Family Owned Business

PIPE Deal Value($ Valuatio Stake Revenue EBITDA PAT M) n ($M) (%) Multiple Multiple Multiple 105.6 880.0 12 3.51 19.97 41.24 5.1 411.3 1.24 3.1 16.81 36.33 15.18 811.8 1.87 2.81 16.04 31.78 11.05 221.0 5 1.86 9.38 22.97 15 819.7 1.83 2.57 15.66 32.17 19.6 2.1 4.7 13.5 15 1.3 5.8 2.7 6 6 5.5 10 5 58.0 18.7 40.0 54.5 275.0 216.0 34.1 10 14.42 15 11 2 4.63 14.66 3.58 9.36 28.23 4.29 4.6 7.88 2.05 1.44 0.5 0.94 1.01 10.95 12.06 8.23 9.27 8.67 19.21 18.83 20.77 0.73 0.84 0.12 4.88 2.15 2.43 1.11 5.06 0.65 18.18 10.57 10.38 2.06 15.33 2.09 27.99 14.35 20.78 440.4 362.1 391.7 900.0 192.3 4.45 0.58 1.2 1.5 7.8 1.48 1.69 0.69 2.13 3.43 7.84 18.86 3.82 10.4 25.44 14.56 102.73 5.3 15.39 41.07

Date Sep-07 Aug-05 Apr-08 Sep-04 Ma y-09

Company Apol lo Hospita l s Apol lo Hospita l s Apol lo Hospita l s Apol lo Hospita l s Apol lo Hospita l s

Sector Hos pita l s Hos pita l s Hos pita l s Hos pita l s Hos pita l s

Investors Apa x Pa rtners IFC Apa x Pa rtners Tema s ek IFC Sta nCha rt PE Sta nCha rt PE Sta nCha rt PE Chrys Ca pita l IFC Citi Citi , Others ADM Ca pita l Ridgeba ck Ca pita l IFC New Vernon New Vernon Ta no Ca pi ta l Genera l Atl a ntic Citi , Henders on Clea rwa ter Ca pi ta l Clea rwa ter Ca pi ta l Clea rwa ter Ca pi ta l Clea rwa ter Ca pi ta l UTI Ventures , Spri nghi ll Bi oventure Fund Tema s ek

Feb-04 Aurobi ndo Pha rma Pha rma ceuti ca l s Dec-05 Aurobi ndo Pha rma Pha rma ceuti ca l s Feb-08 Aurobi ndo Pha rma Dec-07 Ca di la Hea l thca re Apr-05 Da bur Pha rma Elder Ma r-06 Pha rma ceuti ca ls Elder Feb-05 Pha rma ceuti ca ls Ga nes h Ja n-10 Benzopl a s t Gra nul es Indi a Gra nul es Indi a Hi ka l J.B. Chemi ca l s JHS Svendga a rd Ma r-11 La bora tori es Jubil a nt Jul-05 Orga nos ys Jubil a nt Dec-04 Orga nos ys Ma r-06 Kopra n Nov-09 Lyka La bs Nov-07 Lyka La bs Ja n-08 Lyka La bs Feb-07 Jun-07 Nov-05 Feb-06 Pha rma ceuti ca l s Pha rma ceuti ca l s Pha rma ceuti ca l s Pha rma ceuti ca l s Pha rma ceuti ca l s Pha rma ceuti ca l Pha rma ceuti ca l s Pha rma ceuti ca l s Pha rma ceuti ca l s Pha rma ceuti ca l s FMCG Pha rma ceuti ca l s Pha rma ceuti ca l s Pha rma ceuti ca l s Pha rma ceuti ca l s Pha rma ceuti ca l s Pha rma ceuti ca l s

60 1,676.0 45.5 12.8 0.5 1.3 2.3 486.1 45.3 11.7 28.3 29.2

Feb-05 Ma rks a ns Pha rma Pha rma ceuti ca l s Ma trix Ma r-04 La bora tori es Pha rma ceuti ca l s

5 67

31.3 498.5

16 13.44 4.63 12.6 16.53

Evaluating M&A Opportunities in Family Owned Business

Early and Growth Stage Deal Value($ Valuatio Stake M) n ($M) (%) 3.6 10.5882 34 Revenue EBITDA PAT Multiple Multiple Multiple

Date

Company Accutes t Res ea rch Jun-06 La bs Ai za nt Drug Res ea rch Ja n-11 Soluti ons Amri ta Ja n-09 Thera peutics Oct-10 Celon La bs

Sector CRO

Investors Aureos Indi a

CRO Pha rma ceuti ca l s (Ca ncer) Bi opha rma ceuti ca ls CRO CRO CRO Hos pita l s Hos pita l s Medi ca l Devi ces Medi ca l Devi ces Bi otech (a ntica ncer) Bi otech (a ntica ncer) Hos pita l s Pha rma ceuti ca l s Pha rma ceuti ca l s Hos pita l s (Rena l Ca re)

Zephyr Pea cock GVFL Sequoi a Ca pita l Indi a Sequoi a Ca pita l Indi a Accel India Ba s i l Pa rtners Mi l es tone Rel i ga re IDFC PE, Ca pi ta l Interna ti ona l Venturea s t Venturea s t Venturea s t Venturea s t Sequoi a Ca pita l Indi a IIML, Others Duke Equi ty NEA, Others

5 15.2253 0.13 0.22026 15.73 47.6667 24 256.959

32.84 59.02 33 9.34

3.37

18.5

3.32 4.19

13.9 18.3

25.03 37.75

Nov-07 GVK Bios ci ences Nov-07 Inbiopro Ka rmi c Feb-10 Lifes ciences Nov-09 KIMS Hos pi ta l Ma nipa l Hea l th Jul-06 Systems Ma rdi l Medi ca l Dec-06 Devi ces Ma rdi l Medi ca l Jul-08 Devi ces Ma ri ll i on Apr-07 Pha rma ceuti ca ls Ma ri ll i on Ma r-06 Pha rma ceuti ca ls Moolcha nd Jun-11 Hea l thca re Ja n-06 Na po Indi a Neemtek Orga ni c Aug-07 Products Ma y-11 Nephrol i fe Ca re

1 2.31965 13 60.3528 70 219.987 1.1 4.34955 0.7 0.25 100

43.11 21.54 31.82 25.29 2.13 21.71 8.43 41.05 16.55 795.26

0.25 20.36 21.64 30.93 40.6 76.5

0.83 4.07662 22.28 102.957 3

10 22.5124

44.42

Evaluating M&A Opportunities in Family Owned Business

Late Deal Value($ Valuatio Stake M) n ($M) (%) Revenue EBITDA PAT Multiple Multiple Multiple

Date

Company Sector Accutes t Res ea rch Sep-10 La bs CRO

Investors Grea ter Pa cifi c Ca pi ta l Evolvence India Li fe Sciences Fund ICICI Venture IIML ICICI Venture Gra ni te Hi ll Fideli ty NYLIM India OrbiMed Kota k PE

Jun-09 Nov-06 Ma r-05 Feb-04 Ma y-10

Anja n Drugs Arch Pha rma la bs Arch Pha rma la bs Arch Pha rma la bs Arch Pha rma la bs

Dec-06 Aves tha gen Apr-07 Aves tha gen Bha ra t Serums & Ma r-10 Va ccines Bha ra t Serums & Jun-08 Va ccines Bi oPlus Life Jun-08 Sciences BSR Super Specia lty Dec-10 Hos pi ta ls Ja n-08 Ca re Hos pita l s Celes ti a l Sep-06 Bi ologi ca l s Centa ur Ja n-08 Pha rma ceuti ca ls Oct-10 Centre for Sight Century Ja n-08 Pha rma cueti ca ls Ma r-06 Cla ri s Li fesci ences Cli nTec Aug-10 Interna ti ona l Dec-04 Concord Bi otech Dec-09 Concord Bi otech Decca n Aug-09 Hea l thca re Decca n Dec-10 Hea l thca re

Pha rma ceuti ca l s Pha rma ceuti ca l s Pha rma ceuti ca l s Pha rma ceuti ca l s Pha rma ceuti ca l s Bi otech & Bi oi nforma tics Bi otech & Bi oi nforma tics Pha rma ceuti ca l s Pha rma ceuti ca l s Pha rma ceuti ca l s (Hea l thca re Suppl ements )

5.0 22.0 4.4 4.0 2.6 13.0 5.5 9.2 6.1

15.3 81.5 37.0 66.7 220.0 130.2 153.6 137.9

32.7 27.0 12.0 6.0 1.2 10.0 3.6 6.7

2.0

43.7

64.3

0.8 16.9 18.8 3.7

3.6 55.9 62.2 19.1

15.8 152.5 169.8

AIF Ca pi ta l

31.0

Hos pita l s Hos pita l s Bi otech Pha rma ceuti ca l s Eyeca re cha i n Bi o-Tech Pha rma ceuti ca l s CRO Bi otechnol ogy Bi otechnol ogy Nutra ceutica l s Nutra ceutica l s

Aureos Indi a As hmore GVFL SIDBI VC Ma trix Pa rtners Indi a GVFL Ca rl yl e Elepha nt Ca pi ta l Ra re Enterpris es Ra re Enterpris es Nexus Ventures Nexus Ventures

10.0 22.5 0.5 7.0 11.4 0.6 20.0 12.5 1.3 12.5 2.1 1.1

118.4

19.0

53.4

21.3

7.3

23.9

45.5

144.0 43.7 7.3 41.7 8.4 6.7

13.9 28.6 18.2 30.0 25.0 15.7

2.2

16.6

36.1

2.2 1.9 1.3 0.8

6.8 3.1 20.1 15.4

15.4 5.2 46.5 61.8

Evaluating M&A Opportunities in Family Owned Business Appendix 5: FMCG Exit Deal Data
Portfolio Investor Company PE Firm(s) Type Ama l ga ma te d Bea n Coffee Pi neBri dge Forei gn Exit Status Industry Food & Bevera ges Sector_Busine ss Description Type Res ta ura nts (Coffee Pub) Buyba ck Ca teri ng (Food Del i ve ry To Offi ce Worke rs ) Acquirer Deal Date Deal Amount (US$ M) Addln Info Acqui s i ti on of 30% s ta ke 18 hel d by AI G Ca l ori eCa re Founder & CEO Cyrus Dri ver, who ea rl i er a l s o hea de d the I ndi a n Opera ti ons of Hel i x, ha s joi ned a ne w PE fi rm Arka Ca pi ta l . INR 48-Cr. Acqui s i ti on of 100,000 Seri es A preference s ha res a nd 260,000 Seri es B prefere nce s ha res hel d by Ja de Dra gon (Gol dma n Sa chs ) repres enti ng 22.44% of the ful l y di l uted i s s ued s ha re ca pi ta l of the ta rget. Inves tment vi a IL&FS Trus t Co. a nd I ndi a Bus i nes s Excel l ence Fund I. No fres h i s s ue of equi ty. Tri l ega l 14 a dvi s ed Gol dma n Sa chs . Investment Details AIG ha d i nves ted $15 mi l l i on i n Nov-02 Return Multiple Company Estimated Valuation Revenue EBITDA Returns (INR Cr) Multiple Multiple PAT Multiple

Pa rti a l

Ni l

Dec-03

Ca l ori eCa re

Hel i x I nves tment I ndi a s de di ca ted

Pa rti a l

Food & Bevera ges

Buyba ck

Promoters

Dec-10

Hel i x ha d i nves ted i n Ca l ori eCa re i n Apri l 2007.

Cremi ca Godrej Bevera ges a nd Foods

Gol dma n Sa chs

Forei gn I ndi a de di ca ted I ndi a de di ca ted

Pa rti a l

Food & Bevera ges

Proces s ed Foods Pa cka ged Foods Hous e hol d Ca re (Fa bri c Whi teners )

Seconda ry Sa l e Stra tegi c Sa l e Seconda ry Sa l e

Moti l a l Os wa l Securi ti es Hers hey Compa ny Acti s , Credi t Lyonna i s

Se p-10

Gol dma n Sa chs ,0.93x,Gol d ma n Sa chs - Exi t wa s on pa r to Gol dma n Sa chs i nves ted $15 the i ni ti a l mi l l i on for 10% i n Ja n-07 i nves tment II ML i nves ted $16.7m i n Ma r-06 Ba ri ng i nves ted $3.6 mn i n 1999 Na vi s Ca pi ta l i nves ted for 74% i n Oct-05. Na vi s i nves tment ma de from Fund IV.

I IML

Pa rti a l

FMCG

Ma r-07

28.3 Acqui s i ti on of 10% s ta ke 8 hel d by Ba ri ng for Rs .40 Cr Pa yment i n ca s h a nd I HC s tock; I HC pa i d a tota l of $110 mi l l i on to buyout Skygourmet a nd Ma rs Res ta ura nts

II ML,1.70x,

Jyothy Ba ri ng La bora tori es I ndi a

Pa rti a l

FMCG

Aug-02

33.68

Ma rs Na vi s Res ta ura nts Ca pi ta l

Forei gn

Pa rti a l

Food & Bevera ges

Stra tegi c Res ta ura nts Sa l e

Indi a Hos pi ta l i ty Corp

Jun-07

MTR Foods

JP Morga n, CoAqua ri us I nves tment Pa rti a l

Food & Bevera ges

Proces s ed Food

Stra tegi c Sa l e

Orkl a Foods Gl oba l Fra nchi s e Archi tects Sha re buyba ck by compa ny

Fe b-07

I CICI Pi zza Corner Venture

I ndi a de di ca ted I ndi a de di ca ted

Pa rti a l

Food & Bevera ges Food & Bevera ges

Res ta ura nts (Pi zza ) Buyba ck Food Proces s i ng

Se p-04

Exi t a pa rt of a reporte d $100M a cqui s i ti on dea l by Norwa y ba s ed Orkl a Foods . Inves tors hel d a bout 41% s ta ke i n the ta rget. JP Morga n 26% a nd Acqua ri us 41 15%. Acqui s i ti on of 33% s ta ke from I CICI Venture. GFA s ta rted Pi zza Corner i n Aug1996.

Acqua ri us ha d i nves ted $1.3M for a 20% s ta ke i n Jul y 2000. JP Morga n ha d i nves ted $4M for a 28% s ta ke i n June 2002. ICICI Venture i nves ted $4 mn (I NR 16 cr) for a 33% s ta ke i n Aug-99 GVFL ha d i nves ted Rs . 2.1 crores bet. 1992-2001

Sa ra f Foods

GVFL

Pa rti a l

Buyba ck

Apr-06 Pa yment i n ca s h a nd I HC s tock; I HC pa i d a tota l of $110 mi l l i on to buyout Skygourmet a nd Ma rs Res ta ura nts Sa l e by Gem I ndi a a s pa rt of Verl i nves t s $15 m i nves tment i n Sul a whi ch i ncl uded fres h i s s ue of s ha res 71

Skygourmet Ca teri ng

Na vi s Ca pi ta l

Forei gn

Pa rti a l

Food & Bevera ges

Ca teri ng (Ai rl i ne)

Stra tegi c Sa l e

Indi a Hos pi ta l i ty Corp

Jun-07

Na vi s Ca pi ta l i nves ted for 74% i n Sept-04. Na vi s i nves tment ma de from Fund II I & NMF-I.

Sul a Vi neya rds Jubi l a nt FoodWorks

I ndi a GEM I ndi a de di ca ted JP Morga n Forei gn

Pa rti a l Pa rti a l

Food & Bevera ges Food & Bevera ges

Bevera ge s (Wi ne)

Seconda ry Sa l e

Verl i nves t

Nov-10 Fe b-10

In Sept -05, GEM Indi a i nves ted $3.5 mi l l i on for for 33% s ta ke 200 1.94 14.12 27.96

Jyothy La bora tori es Acti s , SARF Forei gn

Pa rti a l

FMCG

Res ta ura nts I PO Hous e hol d Ca re (Fa bri c Whi teners ) I PO

Nov-07

74.5

244

2.61

13.1

19.11

Evaluating M&A Opportunities in Family Owned Business Appendix 6: Pharma Exit Deal Data
Portfolio Company Accute s t Re s ea rch La bs Apoll o Hos pi ta l s Aurobi ndo Pha rma PE Firm(s) Aure os Indi a Investor Type Indi a de dica te d Exit Status Industry Sector_Busine ss Description Type Se conda ry Sa l e Publ i c Ma rke t Sa l e Acquirer Gre a te r Pa ci fi c Ca pi ta l Deal Date Deal Amount (US$ M) Addln Info Sa l e of 34% s ta ke by Aureos Indi a ; ete Exie te Exi t l l Compl Compl t: Ma xwe Ma uri tius Pte Ltd s ol d i ts e nti re hol di ng of 20,79,930 22.3 Complsete e umiINRa155 vg s ha re . As s xi t. ng n a Cr. Sa l e of 3,597,364 e qui ty s ha re s a t Rs . 430 pe r s ha re . 35 Sta ke di ve s te d: 6.75% Sa l e of 12.5% s ta ke he l d by 8 ICICI160.55 Cr. Compl e te Exi t. INR Venture Ini ti a l Sta ke Acqui re d: 1.60% Sta ke Di ve s te d: 1.23% (Pos t 35.67 Bonus Is s ue ) Bul k De a l Sa l e INR 90 crore s ; Co Na me : 22.5 Qua l i ty Ca re Indi a t Sta ke INR 4.44 Cr. PART Exi a cqui red: 18.24% Sta ke di ve s ted: 8.05% Entry price 1 In Apr 2008, Fre s e ni us Ka bi , pe r s ha re : Rs .175.21 Exi t a Ge rma ny ba s ed produce r of i nfus i on the ra py a nd 23.4 cl i ni ca l s ta ketito Ol ympus , Sa l e of nutri on products Investment Details Aure os Indi a i nve s ted $3.6 mi Seon for 34% i nl lJun-06 In ll i p-04, Ma xwe Ma uri ti us wa s ma de a prefe re nti a l a l l otment of 2,079,930 e i n ty s 2002. INR 45.2 Cr quiSe p ha re s a t a Prefe re nti a l a l l otme nt of 2,000,000 e qui ty s ha re s of Rs .10 i s s ue d a t Rs .226 pe r ICICI Ve nture i nve s ted $3.15mn i Ma r-00 In De c-07,nChrys Ca pi ta l i nves te d $14.63 Mi l l ion (INR Chrys Ca pi ta l ,2.5 58.53 Cr) for 1.60% s ta ke . In 0x,1.Cos t of De c 09, Chrys Ca pi ta l Inve s tment : INR Te ma s e k,1.90x,T he re turn ca l cul ae ton Te mpl tion Stra te gi c Eme rgi ng Ma rke ts Return Multiple Company Estimated Valuation Revenue EBITDA Returns (INR Cr) Multiple Multiple PAT Multiple He a l thca re & Li fe Sci e nce s CRO He a l thca re & Li fe Sci e nce s Hos pi ta l s

Pa rti a l

Se p-10

Te ma seton Forei gn Te mpl ek Stra te gi c Eme rgi ng Ma rke ts Forei gn ICICI Ve nture Chrys Ca pi t al Indi a de dica te d Indi a de dica te d

Pa rti a l

Ni l

Ma r-07

Pa rti a l

He a l thca re & Li fe Pha rma ce uti Publ i c Sci e nce s ca ls Ma rke t Sa l e He a l thca re & Li fe Sci e nce s Bi ote ch Se conda ry Sa l e

Ni l Indi a Va l ue Fund

Ja n-06

Bi ocon Ca dil a He a lthca re Ca re Hos pi ta l s Concord Bi otech Da bur Pha rma DM He a lthca re Dr. La l Pa thLa bs Fortis He a lthca re Gl e nma rk Pha rma ce uti ca l s He a lthCa re Gl oba l Inbi opro Sol uti ons

Pa rti a l

Ma y-03

34.21

Pa rti a l

He a l thca re & Li fe Pha rma ce uti Publ i c Sci e nce s ca ls Ma rke t Sa l e He a l thca re & Li fe Sci e nce s Hos pi ta l s Se conda ry Sa l e

Ni l

Aug-10

Indi a Indi a Va l ue Fund de dica te d Ra re Indi a Ente rpri s e s de dica te d

Pa rti a l

As hmore Ma tri x La bora torie s Fre s e ni us Ka bi Ol ympus Ca pi ta l TA As s oci a tes

Ja n-08

Pa rti a l

He a l thca re & Li fe Bi ote chnol o Se conda ry Sci e nce s gy Sa l e He a l thca re Pha rma ce uti Stra te gi c & Li fe Sci e nce s ca ls Sa l e He a l thca re & Li fe Sci e nce s Hos pi ta l s He a l thca re Di a gnos ti c & Li fe Sci e nce s Se rvi ce s He a l thca re & Li fe Sci e nce s Hos pi ta l s Se conda ry Sa l e Se conda ry Sa l e Publ i c Ma rke t Sa l e

De c-05

INR 5.88 Cr De a l i nvol ve d a combi na ti on of Pri ma ry Infus i on a nd Se conda ry Purcha s e Pri ci ng de ta l s for IFC i nve s te d INR 65.58 iCr : 7.78% s ta ke i n Apr 2005. IFC wa s a l l otte d 12,145,000 e quia Vaha res a t Rs .54 pe r Indi ty s l ue Fund ha d

Ra re Ente rpri s e s ,1.71 x,

55.16

2.33

7.85

20.81

IFC

Forei gn

Pa rti a l

Apr-08

IFC,1.42x,

Indi a Indi a Va l ue Fund de dica te d Se quoi a Ca pi ta l Indi a Tri ni ty Ca pi ta l Indi a de dica te d Indi a de dica te d

Pa rti a l

Ja n-12

Pa rti a l

Aug-10

Pa rti a l

Ni l HSBC Gl oba l Inve s tme nt Fund Pre mji Inves t, Mi l e s tone Ca pi ta l Stri de s Arcol a b

Apr-10

Ca pi ta l a s a pa rt of the i r INR i nves te d $50M(INR 200 Cr) for 500 Cr inve s tme nt i n the a 26% s ta ke i n the compa ny ta rti t. e xi the s ve d Indi a Pargea l Postt a chiea l e , by s a l e i n quoi a Ca pi ta l India Se Fe b-08. of 16.03% s ta ke i n the i nves te d $10.7 mn a cros s Se quoi a compa ny to TA As s oci a tes two tra nche s i n Jun-05 a nd Ca pi ta l 32 INR ch isCr; COMPLETE Exi ts whi 129 ha l f of Se quoi a Oct-07. In Ja n 2007, Tri ni ty i nve s te d Indi aty Tri ni ,3.25x Ini ti a l Sta ke a cqui re d: 3.53% $6.55 mi l l i on (INR 29 Cr) a nd Ca pi ta l ,1.11x,Co Be fore thi s e xi t s ta ke hel d: i n Ma r 2007, $20 mi l l ion (INR s t of Inves tme nt 29.19 2.52% Sta ke di ves te d a t thi s 87 Cr) for 4.43% Sta ke. - INR 116 Cr

Acti s

Forei gn Indi a de dica te d Indi a de dica te d Indi a de dica te d

Pa rti a l

He a l thca re Pha rma ce uti Publ i c & Li fe Sci e nce s ca ls Ma rke t Sa l e He a l thca re & Li fe Hos pi ta l s Sci e nce s (Oncol ogy) He a l thca re & Li fe Sci e nce s Bi ote ch Se conda ry Sa l e Stra te gi c Sa l e

Oct-06

66.1

IDFC PE Acce l Indi a

Pa rti a l

Ja n-11

IDFC PE vi a Indi a IDFC PE e xi te d wi th twi ce the De ve l opme nt Fund I re turns on i ts i nve s tme nt of i nves te d INR 50-Cr ove r two INR 50 cr i n 2006. tra nche s of INR 25-Cr e a ch Stri de s Arcol a b ha s purcha s e d a 70% s ta ke i n the compa ny. Acce l Indi a inve s te d i n Inbi opro i n Nov-07.

IDFC PE,2.00x

Pa rti a l

De c-10

Inta s Pha rma ce uti ICICI ca l s Ve nture Jubi la nt Orga nos ys

Pa rti a l

He a l thca re Pha rma ce uti Se conda ry & Li fe Sci e nce s ca ls Sa l e He a l thca re & Li fe Pha rma ce uti Publ i c Sci e nce s ca ls Ma rke t Sa l e He a l thca re Pha rma ce uti Publ i c & Li fe Sci e nce s ca ls Ma rke t Sa l e He a l thca re Pha rma ce uti Publ i c & Li fe Sci e nce s ca ls Ma rke t Sa l e He a l thca re & Li fe Pha rma ce uti Sci e nce s ca ls Buyba ck He a l thca re Pha rma ce uti Stra te gi c & Li fe Sci e nce s ca ls Sa l e

Chrys Ca pi ta l

De c-05

INR 53 cr; Chrys Ca pi ta l ha s a cqui red 12.5% s ta ke from 11.9 ICICI222 Cr; COMPLETE Exi t INR Venture s

Ci ti

Forei gn

Pa rti a l

Ni l

Apr-10

In De c-2004, Ci ti i nves te d $25 Ini ti a l Sta ke a cqui re d: 5.15% mi ll i on (INR 110 Cr) for 5.15% On Apr-2010, s a le of Sta ke . Ci ti s ubs cri be d 50 INR 9 Cr, se quiof 2,863,162t a n 1,333,364 e qui ty s ha re s a t 6,666,820 a l e ty s ha re s a e qui ty s ha re s via bul k dea l s . In Nov-07, INR 7.15 Cr, s a le of 2 2,360,000 worth bul k re s a l. INR 96 Cr e qui ty s ha de a t Ci ti ha d a cqui red a 12.55% s ta ke i n Lupi n for a bout Rs 19 126 Cr in Jul y 03 a t Rs 250 pe r In Ma rch 2006, Cl e a rwa te r ha d i nve s te d $13 mi ll i on i n the compa ny.

Ci ti ,2.02x,1. Cos t of Inve s tme nt INR 110 Cr 2. Tota l Re a l i s e d Cl e a rwa te r Ca pi ta l ,0.60x,

Kopra n

Cl e a rwa te r Ca pi ta l Forei gn

Pa rti a l

Ni l

Nov-07

Lupin di Ma l la Drugs a nd Pha rma ce uti ca l s

Ci ti

Forei gn Indi a de dica te d

Pa rti a l

Ni l

Ma y-09

IIML

Pa rti a l

SAIF Myl a n La bora torie s

Apr-06

Te ma s ek, Ma tri x CoTPG La bora tori e s Ne wbri dge Inves tme nt Pa rti a l

Aug-06

INR 1793 Cr. Te ma s e k s ol d s ha re s worth INR 602 Cr whi l e Ne wbri dge s ol d 400 s ha re s worth INR 1191 Cr.

ICICI Ve nture, IIML a nd Sa nde r Morri s Ha rri s Group Co-i nve s te d $23.30m i n Ma y-05; via i n a ffil a te Te ma s e k ( In Jats 2003 iIIML Ma xwe l l Holdi ngs ) & TPG Ne wbri dge Ca pi ta l ha d i nves te d $131M (INR 590Cr) Te ma s e k,2.04x,C os t of Inve s tment -

4710.98

6.46

40.41

62.05