Aurum Deal of the Month – December 2016

Reliance Communications (RCOM) has signed a term sheet with Brookfield Infrastructure Group for the sale of its tower assets and related infrastructure.

The Transaction

Currently, the tower portfolio and fibre business is housed in Reliance Infratel Limited (RITL). The tower assets of RCOM will be transferred from RITL on a going concern basis to form a separate special purpose vehicle (SPV). Brookfield will hold 51% stake in the SPV. RCOM would receive an upfront payment of INR 110 billion from the proposed transaction and would continue to have 49% stake in the SPV. RCOM would also continue to be the anchor tenant on these towers under a long term Master Service Agreement MSA with Brookfield. Brookfield has already completed the due diligence and the definitive agreement is expected to be signed in before the end of 2016. Post the execution of definitive agreement, RCOM would seek the necessary approvals, including the lenders. It could take five to six months after the final deal is signed for the transaction to be completed.

RCOM has a portfolio of 43,400 towers, with a tenancy ratio of 1.92x. It is the country’s third-largest tower company behind Bharti Infratel and Indus Towers. RCOM owns 96% equity in RITL. Minority and institutional investors such as George Soros’ Quantum (M), NSR Partners, Galleon, HSBC Daisy Investment (Mauritius), Drawbridge Towers, Investment Partners B (Mauritius) own the remainder.

Indicative Structure – Post Transaction

aurum deal december

RITL reported FY16 EBITDA of INR 19 billion. The deal values the tower assets of RCom at over INR 215 billion, which implies an EV/EBITDA of approximately 11x. The valuation of INR 4.95 million per tower seems to be apt.

In a similar large tower deal last year, American Tower Corporation acquired 51% stake in India’s Viom Networks for INR 76 billion in cash besides taking on debt, valuing Viom at around INR 210 billion, or 11 times its annualised EBITDA and INR 4.9 million per tower.


RCOM has been trying for a while to monetise its tower assets. In 2015, it had announced that the Sanjiv Ahuja-led Tillman Global Holdings backed by private equity player TPG had signed a non-binding pact to buy its tower assets for around INR 215 billion. But TPG pulled out subsequently over valuation differences.

At the end of Q1 FY17, RCOM had a total debt of INR 420 billion which includes deferred spectrum liabilities. RCOM has previously announced a deal to merge its mobile operations with Aircel to create a new company where it will hold a 50% stake. RCOM will transfer INR 200 billion of debt to the merged entity which will hold the mobile operations of RCOM and Aircel. The tower deal will reduce the debt by a further INR 110 billion.


Brookfield is listed on the New York and Toronto exchanges and has an AUM of USD 250 billion. It has invested USD 2 billion in India since 2009-10. It had acquired some road assets from Gammon Infrastructure Projects Ltd in August last year and bought a majority stake in a string of industrial parks in Delhi-NCR from Unitech in 2014 in large-sized transactions. In July, Brookfield tied up with State Bank of India to invest as much as INR 70 billion in stressed assets. It has also sealed another large transaction in the real estate space to buy an asset from Hiranandani Group for around USD 1 billion, the single-biggest realty deal in the country to date.

Brookfield is expected to continue betting big on India with an investment of USD 2 billion over the next 2-3 years to buyout upscale offices and commercial towers, stranded roads, power and utilities infrastructure.


RCOM has continued to struggle in India mobile business with its growth lagging the growth trajectory of its peers. The management focus on improving balance sheet health would potentially help stabilise the business. The Aircel merger will also definitely strengthen its comparative position.

We believe that the fact, that RCOM continues to hold 49% stake in the business signals that RCom sees considerable potential upside to be enjoyed by remaining invested in the towers business. Significant growth in tenancies expected as a result of the increasing coverage of 4G telecom services in the country. The market also believed that the deal was a positive for RCOM. The company’s shares closed 2.57 % higher on BSE on the day of announcement.

The transaction also brings into focus the emerging buyout opportunities for stressed assets in India. Large conglomerates are increasingly focussing on their core businesses and divesting non-core assets. Thanks to tightening of norms related to restructuring of assets, and greater power provided to lenders to recover dues, promoters have been forced to consider selling distressed assets and subsidiaries to retire some of their debt.

The top deals of 2016 include the sale of controlling stake in Essar Oil to PJSC Rosneft Oil Co by the heavily indebted Essar group, and UltraTech Cement Ltd’s acquisition of Jaypee Group’s cement assets. The number of buyout transactions is expected to go up in the coming years. The depressed rupee, trading at record low vs the USD, will also encourage foreign investors to buy more Indian assets.

Disclaimer: Aurum Equity Partners LLP was not a part of this deal in any way.

Aurum Deal of the Month – November 2016

MakeMyTrip and Ibibo, two of the biggest online travel platforms in India, have announced a merger that will combine the two businesses under the former’s brand, with Ibibo getting a 40% stake in the combined entity.

The Transaction

Naspers and Tencent through their jointly owned company (91% – Naspers, 9% – Tencent) are selling ibibo Group to MakeMyTrip in exchange for a 40% stake in the combined entity. The merger is expected to close by the end of 2016 and is subject to approvals by MakeMyTrip’s shareholders and Competition Commission of India. Naspers will also contribute proportionate working capital upon closing. Additionally, prior to closing , the USD 180 million, 5-year convertible notes issued by MakeMyTrip Limited to Ctrip will be converted into common equity, resulting in Ctrip having an approximately 10% stake in the combined entity.

Deep Kalra will remain Group CEO & Executive Chairman. Co-founder Rajesh Magow will remain CEO India of MakeMyTrip. The founder & CEO of ibibo Group, Ashish Kashyap, will join MakeMyTrip’s executive team as a Co-founder and President of the organization. Management indicated that both the platforms and brands (including redbus) will be run on an independent basis and back-end operations/infrastructure will be integrated over a period of time.

Market Perspective

The merger will create a dominant player in Indian online travel. MakeMyTrip and goibibo account for 50% of online hotel bookings (28% and 21% each respectively), respectively. MakeMyTrip is the leader in online flight bookings with a 30% market share, followed by ibibo.

deal of the month nov 2016

The deal will combine such travel brands as goibibo, MakeMyTrip, redBus, Ryde and Rightstay with combined 34.1 million transactions processed in FY16.

chart for deal of the month nov 2016

Aurum Perspective

The combination of top two players in the Indian OTA space could be a driver towards enhanced profitability by reducing competitive intensity and promotional spend. In the long term, the strategy seems to be a sound one and value accretive. Lower discounts would result in better unit economics, besides which, the company can also be expected to have better bargaining power with airlines and hotels. However, the current valuations accorded to Ibibio group seem to be very rich.

The combined entity will have a valuation of USD 1.8 billion (INR 120 billion) as per Morgan Stanley, the bankers to the transaction. MakeMyTrip had a market capitalisation of USD 850 million before the deal was announced, besides which it had debt worth approximately USD 180 million. In all, it was valued at 6.1 times fiscal 2016 revenues. This would imply a value for Ibibo (+ synergies) of USD 770 million, a multiple of 8.4 over Ibibo’s FY16 revenue of USD 91 million.

The shareholders’ of Ibibo have managed to get 40% equity of the combined entity, even though there contribution to the combined revenue is 35%.
There is definitely merit to the thought that the profitability of the combined entity will be enhanced due to elimination of the cut-throat competition between the two parties which had resulted in significant cash burn. In FY15, Ibibo made losses of USD 62 million on the back of revenues of USD 38 million—this was largely on account of the cash burn in the hotels business. MakeMyTrip was forced to follow suite and ended up with losses of USD 89 million in FY16.

The investors at the moment do not seem to be too concerned though. MakeMyTrip’s share is trading at USD 27 (4 Nov 2016), a 33% rise after the transaction was announced. The Euphoria hasn’t stopped there. The company’s share count is expected to rise by as much as 2.4 times post the transactions, as per their filings. This implies that the investors are valuing the combined entity at USD 2.9 billion. It works out to approximately 11 times the estimated revenues of the combined entity.

Drying up of discounts will erode growth rate. There are other risks also, which need to be considered such as acquisition integration, competition, lower commissions and macro risks related to hotel and airline industry. A correction in the share price and valuations in the short to medium term will not be surprising.

graph deal of the month nov 2016

Disclaimer: Aurum Equity Partners LLP was not a part of this deal in any way.

Aurum Deal of the Month – October 2016

Sony Pictures Networks India (SPN) and its affiliates have entered into definitive agreements to acquire TEN Sports Network from Zee Entertainment Enterprises Limited (ZEE) and its subsidiaries for USD 385 million.

Enterprise Value/ Sales: 4X

The Transaction

In August 2016, Sony Pictures Networks India (SPN) announced that it will acquire Ten Sports for INR 26,000 million (USD 385 million) from Subhash Chandra-run Zee Entertainment Enterprises (ZEE). The sports business is held by Zee under the wholly-owned subsidiaries viz. Taj TV Ltd, and Taj Television India Pvt. Ltd. The transaction is expected to be completed by the end of FY17. ZEE had bought Ten Sports from Dubai-based Abdul Rahman Bukhatir’s Taj Group in 2006.

Zee Sports business: Portfolio

Zee Sports business: Portfolio

Zee Sports Business: Revenue and Profitability

Zee Sports Business: Revenue and Profitability

As part of the transaction, Zee has signed a Non-compete clause with Sony for 4 years. Also, any outcome from ongoing court cases with BCCI (dispute amount of INR 1,500 million and Prasar Bharti (INR 1,250 million with interest) will be borne by Zee.


Enterprise Value = INR 26,000 million
FY16 Sales = INR 6,310 million
EV/ Sales = 4.1

The sports business had a negative EBITDA of INR 372 million in FY16. The company had guided for sports losses of ~INR 1billion for FY17. Hence the divestment is expected to increase Zee’s EBITDA by ~INR 1billion annually. Consequently, the share price for ZEEL has increased by 14% since the announcement of the transaction in the last week of August 2016.

deal of the month october aurum

Zee Group Perspective

Zee’s sports business contributed approximately 15% to revenues at INR 6,300 million and incurred an EBITDA loss of INR 350 million in FY16. The deal is being seen as a positive for Zee Group. The management had indicated that expectations from sports business margins remained in single digits, which would be dilutive to the consolidated margins of the company. Thus, the exit made economic sense. The unimpressive revenue growth of – 2.1% FY14-16 CAGR and cumulative sports losses of INR 1,591 million in the past two years have served as drivers for the sale.

Zee Group is expected to use some portion of the proceeds towards increased investments into the live entertainment and digital businesses or would consider returning the deal proceeds to shareholders either in terms of cash or early redemption of preference shares.

Sony Pictures Networks Perspective

The deal would help Sony get a foothold in the African and Middle East markets where Ten Sports has a sizeable presence. SPN’s biggest competitor Star Sports, a unit of Rupert Murdoch’s 21st Century Fox, owns rights to home cricket matches for India, Australia, England and also the International Cricket Council-organised World Cups. SPN’s acquisition will make it difficult for a third challenger to emerge as most prize properties will be locked for three-four years. Neo Sports, which also runs sports channels in India, doesn’t have any significant properties.

SPN sports properties include cricket (IPL, CPL, Ram Slam), football (FIFA 2018 World Cup Russia, UEFA Euro 2016, FIFA World Events including FIFA U-17 World Cup 2017 in India, European and South American Qualifiers for FIFA WC 2018, FIFA Confederations Cup, LaLiga, Serie A, FA Cup, Copa America Centenario, International Champions Cup), tennis (Australian Open, ATP 1000 and 500 World Tour Events, Champions Tennis League), fight sports (TNA, UFC, Pro Wrestling League), basketball (NBA) as well as NFL and Premier Futsal.

Statements by Key Personnel

NP Singh, CEO, Sony Pictures Networks India: “I welcome TEN Sports to the Sony family. The acquisition of TEN Sports Network will strengthen SPN’s offering for viewers of cricket, football and fight sports, complementing our existing portfolio of international and domestic sporting properties. It also aptly demonstrates SPN’s commitment to providing a broad range of sporting entertainment to fans across India and the sub-continent.”

Punit Goenka, Managing Director, Zee Entertainment Enterprises Limited (ZEE): “This is a landmark deal for ZEE and a step towards a strategic portfolio shuffle as we grow our general entertainment business both in the domestic and overseas markets. While we have grown our sports business over the last 10 years through acquisition of content at competitive prices, our focus now is on transforming ourselves into an all-round media and content company, comprising of five verticals, viz. broadcast, digital, films, live events, and international business; and we continue to move rapidly”

Disclaimer: Aurum Equity Partners LLP was not a part of this deal in any way.

Aurum Deal of the Month – September 2016

Shanghai Fosun Pharmaceutical (Group) Co. Ltd. ( “Fosun Pharma”), a leading Chinese health care provider) will acquire ~86% stake in the KKR-backed Gland Pharma (“Company”) for up to USD 1.26 bn.

The Transaction

Fosun Pharma has signed a definitive agreement to acquire ~86% stake in Hyderabad-based pure-play generic injectable products company Gland Pharma, for upto USD 1.26 bn.
Fosun will acquire shares from KKR, the Founders, Vetter Group and also subscribe to Convertible Preference Shares of Gland Pharma (amounting to ~ 6% stake). PVN Raju, Founder of the Company, and his son Dr. Ravi Penmetsa will retain a stake and continue on the Board of Gland Pharma. Dr. Ravi Penmetsa will continue as MD & CEO.

The deal is subject to customary regulatory and shareholder clearances.

About Gland Pharma

Established in 1978, Gland Pharma develops and manufactures generic injectables (under CDMO model) for use in 90 countries, with a focus on the Indian and US markets. The Company is the first injectable drugs manufacturer in India that has obtained FDA approval. It has also established an improved injectable drug manufacturing platform lines with GMP Certification in the major regulated markets including the United States and Europe.

Gland’s world-class manufacturing facilities have also received approvals from a number of key medical regulatory agencies around the globe including those in Australia, Germany and the UK, in addition to the World Health Organization (“WHO”).

The major products of Gland Pharma are:


In FY 2016, reported Revenues of ~ USD 215 mn and net profit of USD 50 mn

Gland Pharma is a specialized Complex injectables manufacturer, which offers a compelling business opportunity.

According to analyst reports the global generic Sterile Injectable (SI) market is estimated to reach sales of USD 70bn in 2020, with a CAGR of 10% during 2013-20 (vs. overall SI segment at 6%). Furthermore, the global industry is expected to be driven by the US, China and emerging markets, with growth of 6%, 13% and 12%, respectively, during the same period.


The US generic injectable market is being driven by drug shortage and patent expiries. A high percentage of drug shortages are sterile injectables in the US, and the upward trajectory continues. According to the FDA, the quality issue has been the major reason causing drug shortages in the US. Additionally a number of injectable drugs are facing patent expiries (during 2015-19), representing a sizeable opportunity for generic manufacturers.

This has led to several injectable asset sales to large players at valuations, ranging from 16-22x EV/EBITDA. The valuations can be attributed to high demand for quality injectable products, shortage of global manufacturing capacity and the longer approvals of plants / products.

Transaction Rationale for Fosun

– Augmenting its own range of injectable portfolio by selling in developed and other markets (Fosun can launch its own biosimilar products in India)
– Leveraging Gland’s CMO facilities in India and 53 ANDA approvals by USFDA including oncology facility (Fosun will supply API’s to reduce Gland Pharma production cost)
– Expedite its international business as Gland Pharma has a broad network of distribution globally
– Enhance market share in the injectable space
– Access to Gland Pharma R&D infrastructure & pipeline

Transaction Rationale for Gland Pharma

– Aligning with a larger conglomerate and access to capital as required
– Leveraging Fosun’s front end capabilities in certain key markets
– Access to Fosun’s mature portfolio of biosimilars


As per filings made by Fosun Pharma, Gland Pharma has been valued at an Enterprise Value of ~ USD 1,350 mn primarily based on FY 2016 EBITDA. As per our analysis Gland Pharma is being valued at an EV/EBITDA of 16x (FY 2016 EBITDA of ~ USD 85 mn).

In the past Indian injectable assets have been valued at an EV/EBITDA range of 16-22x:


Additionally as per news reports it was reported that Claris Lifesciences was valued in excess of 22x EV/EBITDA.


This deal reflects the ability of Indian companies to create world class manufacturing facilities and further the manufacturing paradigm / Make in India initiative. As a result Global pharmaceutical companies will continue to find Indian assets highly strategic in their overall growth initiatives.

Disclaimer: Aurum Equity Partners LLP was not a part of this deal in any way.