Deal focus: A91 spices up its portfolio

When A91 Partners, an Indian investor founded by three former Sequoia Capital executives, acquired an approximately 25% stake in local spices maker Pushp this week for INR1.2 billion ($16 million), the venture capital play had a distinct ring of private equity to it.

A91 has made it clear it would prefer to be the first and only investor in its portfolio companies, targeting revenue-generating under-the-radar winners that have bootstrapped themselves to the point where they need help taking things to the next level.

The firm has a 90-day plan for Pushp, a low-tech brand dating back to the 1970s, that prioritizes hiring a new CFO. It also wants to bolt-on regional competitors and pursue a traditional-media marketing campaign to grow operations beyond the company’s home state of Madhya Pradesh, which currently accounts of 70% of sales.

The spirit of the deal, however, remains pure VC. A91’s interest in having the boardroom to itself is less about control than simply being on the same page as an entrepreneur who is trusted to run the show.

“When you are the only investor at the table, you have a lot of ability to really have alignment with the founder, without them being pulled in different directions by the board,” says Abhay Pandey, a co-founder of A91. “Founders do get confused about not just the direction of the business and feedback on that, but other corporate matters like when and how much to money to raise, and how to prioritize between growth and profitability.

“You should row together, even if you’re rowing in the wrong direction. Not rowing together doesn’t get you anywhere. Rowing together gets you somewhere.”

Pushp was under consideration by the A91 team when they were still at Sequoia but it was insufficiently professionalized at the time. Since cleaning up its back office, the company has lifted its growth rate to around 25% and notched an EBITDA margin of 13%.

Part of the interest was the sector itself. Spices is seen as the most profitable segment of the broader food space, with the largest players seeing EBITDA margins of more than 25%. While the gross margin on single-ingredient products such as chili powder is around 30%, blended spices can achieve 40-45% - comparable to categories such as cosmetics.

“We did not know the profitability that existed until we dug deeper into the numbers,” Pandey says. “As you start getting into the quality-conscious customer, the margins that you can make are closer to FMCG [fast-moving consumer goods] than food.”

More enticement came from the snowballing excitement around spices. This is best exemplified by ITC’s acquisition last month of spice maker Sunrise Foods for $265 million, as well as recent entries by the likes of Tata Group and Unilever. “Activity is hotting up because people realize there are a bunch of players that could buy them and consolidate the market,” Pandey says. “There will be a lot of action in this space in the next 3-5 years.”

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• Topics
• South Asia
• Consumer
• Expansion
• India
• Venture
• A91 Partners