FRENCH KISS FOR INDIAN FOOD MART

Sodexo gobbles up RKHS in Rs 520-cr mega deal

FRENCH food services giant Sodexo is acquiring Radhakrishna Hospitality Services Group (RKHS), India's pioneer in the food and facilities management sector, for $100 million, or roughly Rs 520 crore. The deal was unveiled on Tuesday afternoon, with Sodexo informing the Paris stock exchange about a binding agreement to buy out the Indian rival.
    ET first reported on the potential transaction in its edition dated February 6, and broke the deal news in its online edition ahead of the formal announcement on Tuesday morning. It is believed that a formal deal was clinched following marathon meetings with RKHS founder-promoter Raju Sethe, who was parked in Singapore for the past few days.
    "The Indian market is offering strong growth opportunities. The market is growing by 25-30% every year and it is strategic and important to us," Yann Coleou, president, Indian operations, Sodexo, told ET on Wednesday, a day after the deal was announced.
    He said Sodexo's market share has increased seven times post-acquisition, and it has become the largest food service company in the country. "With this deal, we also become the top three in the facility management sector," Mr Coleou said.
    The transaction will help Sodexo leap forward, leaving its international peers Compass and Aramark way behind in a significant emerging market like India. RKHS, with about 20,000 employees across 22 states and 65 locations, reported $84 million revenues for the year ended March 2008. BMR Advisors was the sole advisor to Radhakrishna on this deal.
    The deal catapults Sodexo to clear leadership in India's complex, but evolving food services industry. The organised sector's penetration in the domestic catering and facilities management market is just around 15%, which throws up opportunities for significant upsides in the future. RKHS has seen its annualised revenues jump nearly 30% in recent years. Mr Coleou said that the food service giant wants to increase its presence in the country further through both organic and inorganic routes. "We are looking at all growth opportunities," he said.
    Sodexo, with annualised revenues of over € 13.6 billion and presence in over 80 countries, has been operating in the domestic market for almost a decade with the eponymous meal coupons being the most visible element of its business locally.
    Mr Sethe will become the non-executive chairman of the combined entity. He will continue to own and manage his food retail business under Radhakrishna Foodland separately. INDIAN FLAVOUR
Radhakrishna Hospitality, founded in 1966, is the leader in India's food services and facilities management sector
The Mumbai-headquartered
company employs over 20,000 people across 22 states
Company reported $84 million revenues in 2007-08
RKHS has seen revenue growth of nearly 30% in recent years
Acquisition catapults Sodexo to leadership in India, where organised sector accounts for just 15% of the catering & facilities management business. This throws up opportunities for significant upsides in future
RKHS founder Raju Sethe will continue to own a food chain business under RK Foodland separately 13.6 billion € sales
SODEXO OPERATES IN OVER
80 MARKETS WITH OVER 3,50,000 EMPLOYEES RKHS deal size surprises many
"THISrelationship with Sodexo will create sustainable employment opportunities and growth for a country that needs it the most. Ownership shift is not an issue. It's about creating an institution and creating jobs in every service area," Mr Sethe said.
    "RKHS is a leader in food and facilities management services by a distance. It remained a profitable business even as it scaled up operations nationally. In context, the transaction is a big statement coming from a global major like Sodexo," said a partner at BMR Advisors. This probably explains why the valuation surprised deal street observers, who were betting on a Rs 400-450 crore transaction mirroring the top line of Radhakrishna Hospitality.