Avigo Capital to Take Over Spykar

PE ropes in Metmin Investments for buying controlling stake in 19-year-old denim brand

SAGAR MALVIYA & CHAITALI CHAKRAVARTY
MUMBAI | NEW DELHI

    Private equity firm Avigo Capital has brought in Metmin Investments as a copartner to acquire a controlling stake in Spykar Lifestyle, reversing its earlier plan to exit the homegrown jeans brand.
“We changed our strategy from exit to build since we have resolved differences with promoters of the company on how to run the business,” Avigo Capital Managing Partner Achal Ghai said. “Spykar will be professionalised soon.”
This makes the 19-year-old denim maker the third Indian apparel retailer to be acquired by PE investors this year after Vishal Retail and Weekender. Primus Retail sold apparel brand Weekender to finance firm Madhusudan Securities for . 100 crore in February, and in March, Vishal Retail sold its wholesales business to private equity firm TPG for over . 70 crore.
Metmin Investments will invest . 30 crore for a 30% stake in Spykar, while Avigo will hold another 30% stake. Company’s promoters Prasad Pabrekar and Harshada Pabrekar will hold the balance 40%, but the private equity players will work together to control the company.
When contacted, Spykar officials refused to confirm the deal. “It’s not yet finalised and there are a couple of discussions as on date. It will be difficult to comment on deal at the moment,” Spykar Marketing Director Sanjay Vakharia said.
In the next 2-3 weeks we will be able to understand our prospective partners, he added.
SLOWDOWN BLUES Spykar’s financial woes started three years ago just like several other retailers when the economic slowdown following global recession crippled sales.
The crisis forced retailers to shut several stores and cut several jobs just to survive. Yet, some, such as Subhiksha, collapsed and many others, including Spykar, slipped into huge financial burden. The retail business was booming in India just before the global recession struck. Spykar too had started expanding rapidly with the money it received from Avigo Capital for a 40% stake in the company in 2007.
Its move to launch children’s brand OYO backfired as it was followed by the global economic downturn,
which prompted consumers to hold back spending on discretionary items such as apparel. Over 35 properties that Spykar had taken on lease for OYO and VOTO brands at prime locations at a premium soon became a liability. The company tried to cancel lease agreements, but some landlords refused to accept it. Real estate developers too had a huge crisis then as demand fell and prices crashed. Since Spykar had already made three year advance payment to the landlords, it had no option but to open some OYO brand stores.
But due to mounting debt and dampened sales, the company soon had to shut loss-making OYO stores and withdraw commitments towards fashion wear brand VOTO, which was slated for launch in 2008.
RESTRUCTURING DRIVE Since last year, Spykar has closed more than 60 loss-making stores, sold real estate assets to pay certain expenses, reduced headcount and restructured debt to revive its business.
Avigo decided to exit the company in March. It sold its stake to the company’s promoters for . 50 crore on a condition that if Spykar fails to make full payment over the next 18 months, Avigo would take control of the firm. Since then, negotiations between the two parties were on to restructure that deal.
Now, Avigo has brought in Metmin Investments as a co-partner and a new deal is in place.
Avigo’s Ghai says Spykar still has the potential to become big. “The brand has consumer pull and potential to become really big,” he said.
Spykar’s revenues more than doubled to . 176 crore for the year ended March’11 from . 72 crore in 2007.
Launched in 1993, Spykar has overseen the boom in denim jeans from a commodity business to an iconic fashion statement with the launch of several international and homegrown brands.
In early days, the brand stuck to Bombay till it got acceptance among consumers. Since it could not match the marketing muscle of brands such as Levi’s and Lee, it focused on college fests to woo young consumers. Spykar opened its first exclusive outlet only in 2005. Then it started growing rapidly till it ran into trouble.
Wear And Tear
    176 crore SPYKAR’S revenues in FY 2011
30 FACTORY outlets called Yellow Ticket
209 EXCLUSIVE
franchisee-run stores
265 NUMBER of cities where it’s available
METMIN INVESTMENTS will invest 30 cr for a 30% stake in Spykar, while Avigo will hold another 30% stake PRIMUS RETAIL sold apparel brand Weekender to finance firm Madhusudan Securities for 100 crore in February IN MARCH this year, Vishal Retail sold its wholesales business to private equity firm TPG for over 70 crore