Future Group completes all-cash buyout of FabFurnish
06 April 2016
The Kishore Biyani-led Future Group has completed its buyout of FabFurnish, as it looks to take on Swedish furniture retailing giant IKEA, which is expected to make its entry in India next year, and in the process, also marking the first exit of Rocket Internet in India
The all-cash transaction will see the Future Group bring its entire portfolio of home furnishings and decor business under the FabFurnish brand, making it the largest home furnishings and decor business in the country.
Kishore Biyani, chief executive of the Future Group, in an interview with CNBC-TV18, said that FabFurnish is a high margin and profitable business, currently operating at 40-41 per cent margins.
The aim is to enter into more cities via the home furnishing brand, Biyani said, adding that it plans to operate in 100 cities eventually.
Biyani expects earnings before interest, tax, depreciation and amortization (EBITDA) of Rs40-50 crore from this acquisition.
Future Group is looking at more acquisition opportunities in the specialty retail space, Biyani added.
The move, according to Biyani, will also act as bulwark against IKEA, which is scheduled to open its first store in the country in 2017, and which has identified India as one of the key growth markets globally.
"We are creating the largest home furnishings company in the country. IKEA is coming in, and it will take them at least two to three years to become a Rs1,000 crore company, and we are already there," he said.
While the entire FabFurnish team has been retained for the time being, Mahesh Shah, Future Group senior executive and chief executive of Home Town, the home furnishings business owned by Future Retail, will head the new entity.
The FabFurnish team, according to Biyani, will continue to look after the online retail part of the business.
The acquisition also marks the first exit of Rocket Internet from an Indian investment. Rocket has invested in retail e-commerce firms such as Jabong and Foodpanda.
FabFurnish is owned and operated by Bluerock eServices Private Limited (BEPL). Though financial details of the deal have not been disclosed, reports quoting sources familiar with the matter said that Future Group may pay anywhere between Rs15 crore and Rs20 crore for the deal, at Rs4 per equity.
Future Group already owns a furniture and home furnishing brand called HomeTown which has its presence in 20 cities through 40 HomeTown stores. The acquisition of FabFurnish will help the company expand its presence across the country and beyond.
Post acquisition, the whole management team of FabFurnish, including 100 odd employees, will join HomeTown but continue to look after the online retail business of the company.
Future Retail will benefit from acquisition of Fabfurnish brand as it will expand presence while also entering the ecommerce space. It will also help the group diversify business into furniture and home furnishing.
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Future Group plans to use the FabFurnish brand to expand the presence of HomeTown across India and cater to areas that are not covered by its brick-and-mortar stores.
''We will leverage FabFurnish's online platform and delivery model to grow our presence in markets where we do not have offline stores or have minimal reach, Kishore Biyani, chief executive of Future Group, said.
Biyani wants HomeTown to become an Rs800-1,000 crore business by the end of the current financial year.
FabFurnish will also help prepare HomeTown for eventual competition with Swedish furniture retailing giant IKEA, which is expected to enter India next year. Biyani expects the combined entity to achieve pre-tax earnings of Rs40 crore to Rs50 crore in the current fiscal.
Founded in 2012, FabFurnish is one of the early entrants in the online furniture segment. Initially, it also used to sell private labels on its platform besides promoting merchants.
It shifted to a wholly marketplace model last year after founders Mehul Agrawal and Vikram Chopra quit the company to start their own ventures. It also fired almost 25 per cent of its workforce and vacated its warehouse in order to cut costs and improve financial health.
The company, however, failed to sustain business amidst the stiff competition from other heavily funded ventures such as PepperTap (backed by Goldman Sachs) and UrbanLadder (backed by Sequoia Capital).
BEPL reported net worth of Rs19.56 crore and a turnover Rs78.93 crore in FY15. According to the Future Retail management, the acquisition will boost EBITDA by Rs 40 to 50 crore.
Future Group is expected to announce more acquisitions in specialty retail space.