FirstCry In Talks With Sovereign Funds To Sell Stake At $3 Bn Valuation

Omnichannel retailer FirstCry is in talks with a group of sovereign funds to help some of its shareholders sell a stake in the company for nearly $3 billion, an Economic Times report said.

This discussion started after talks with private equity firm Kedaara Capital fell through a few months ago. While talks are still in the early stages, the funding is being positioned as a pre-IPO round for the Pune-based startup, sources told the ET.

SoftBank, led by Masayoshi Son, is likely to sell a portion of its 29 per cent stake in the omnichannel retailer of mother and baby products if the deal goes through, sources added.

Domestic ownership

A secondary share sale worth around $100 million is likely to be formalised, the report said.

"Talks have been ongoing for a few months, but no agreement has been reached... Middle Eastern sovereigns and some pension funds may come on board in this secondary share sale," said the source, adding, "Deal contours can shift as discussions progress."

FirstCry may also seek additional domestic capital to strengthen its domestic ownership. As a multi-brand retailer, the company must follow the country's foreign investment rules and keep foreign holdings to less than 51 per cent.

Other significant investors include Premji Invest (9-11 per cent), Mahindra Retail (12-13 per cent), and TPG (6-7 per cent), in addition to SoftBank.

The company was valued at $2.7 billion after receiving capital from Premji Invest. This investment came after a funding from the National Investment and Infrastructure Fund (NIIF) fell through, even though the deal had been approved by India's antitrust regulator, the Competition Commission of India (CCI).

“The secondary sale is expected to take place at the same valuation as its previous fundraise … Earlier, talks with Kedaara were at a higher price but did not go through after months of them being engaged,” a second person was quoted as saying by the ET.

According to previous reports, SoftBank and NewQuest Capital Partners were looking to sell FirstCry shares on the secondary market, valuing the retailer at $3.5-4 billion.

FirstCry has been in talks for a long time to reduce its foreign holdings before going public, which is why it secured capital from Premji Invest. The company had planned to file draft IPO papers last year but postponed them due to market volatility.

SoftBank has been partially exiting some of its India investments in listed companies over the last six to eight months as it seeks to distribute cash to sponsors or limited partners in the SoftBank Vision Fund.

The Japanese conglomerate sold a $200 million stake in digital payments company Paytm in November of last year, and it recently pulled out $130 million by liquidating shares in logistics firm Delhivery.

So far, SoftBank has profited slightly less than $6 billion from its India investments, including $4 billion from Flipkart's sale to Walmart in 2018. Since then, the group has returned to Flipkart by investing in it again in 2021.

The firm's most recent exit from a privately held Indian company was in Lenskart, an eyewear retailer that received a $500 million investment from the Abu Dhabi Investment Authority.. The Japanese company is said to have made between $90-100 million from the Lenskart deal.

SoftBank's selling streak coincides with a technology rout in the public markets experienced by tech-heavy investors. According to the Financial Times, SoftBank is expected to sell almost all of its remaining shares in Alibaba Group, leaving it with only a 3.8 per cent stake in the Chinese ecommerce behemoth.

FirstCry is among a small number of profitable online-first Indian businesses.

Sources said that while its audited results for the fiscal year ended March 31, 2022 are yet to be filed with the Ministry of Corporate Affairs, it is expected to post a profit, excluding costs for employee stock ownership plans.

The company reported a net profit of Rs 216 crore for the FY 2021, compared to a loss of Rs 191 crore the previous year. Revenue increased to Rs 1,603 crore in FY21, up from Rs 814 crore the last year.

The retailer has over 650 offline stores as well. It also owns Globalbees, an ecommerce roll-up platform worth $1.1 billion. Globalbees has acquired more than 26 companies, totaling 55 brands.

Xpressbees, a $1.5 billion third-party logistics firm led by Amitava Saha, was spun out of FirstCry parent Brainbees Solutions, which was founded in 2010 by Supam Maheshwari, Saha, Prashant Jadhav, and Sanket Hattimattur.