FirstCry plans secondary offer to sovereign funds at $ 3 billion valuation

Omnichannel retailer FirstCry is in discussions with a set of sovereign funds to facilitate some of its shareholders to sell a stake in the company at a valuation of nearly $3 billion, three people in the know told ET. This started after deal talks with private equity firm Kedaara Capital fell through a few months ago, people in the know said. While discussions are still in the early stages, the funding is being primed as a pre-IPO round for the Pune-based startup, they said.

Masayoshi Son-led SoftBank, the largest shareholder of the omnichannel retailer of mother and baby products, is likely to sell a part of its 29% holding if the deal happens, according to people familiar with the matter.

Also read | SoftBank, others may pare FirstCry stake pushing company valuation to $4 billion

Local ownership norms

Around $100 million worth of secondary share sale is likely to be formalised, said these people who did not want to be named as the discussions are private.

“Talks are ongoing for a few months, but the deal is yet to be finalised … Middle Eastern sovereigns and some pension funds may come on board in this secondary share sale,” said the person. “Deal contours can change as discussions move forward.”

FirstCry may also look to bring in additional domestic capital to shore up local ownership in the firm.

A spokesperson for FirstCry and SoftBank did not respond to ET’s request for comment.

Being a multi-brand retailer, the company must adhere to the country’s foreign investment rules and keep foreign holding to under 51%. Similar to Nykaa, FirstCry is an Indian-owned and controlled company, with domestic funds owning majority shares.

Besides SoftBank, its other significant investors include Premji Invest (9-11%), Mahindra Retail (12-13%) and TPG (6-7%).

The company was valued at $2.7 billion after it last picked up capital from Premji Invest. This investment came after a funding from National Investment and Infrastructure Fund did not fructify even after the deal got clearance from antitrust regulator Competition Commission of India.

“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 said.

ET first reported on August 10 last year, citing people in the know, that SoftBank and NewQuest Capital Partners were seeking to sell shares in FirstCry in the secondary market, valuing the retailer at $3.5-4 billion.

FirstCry has been in prolonged talks to trim its foreign holding before it goes public, which is why it shored up capital from Premji Invest. The company had plans to file its draft IPO papers last year but deferred them when the markets turned choppy.

SoftBank selling stakes

Over the past six to eight months, SoftBank has been partially exiting some of its India investments in listed firms such as Delhivery, Paytm and Policybazaar, as it looks to distribute cash to sponsors or limited partners in the SoftBank Vision Fund.

In November last year, the Japanese group sold $200 million of stake in digital payments company Paytm, while more recently, it pulled out $130 million by liquidating shares in logistics firm Delhivery.

SoftBank has made exits of just under $6 billion from its India bets so far, including the $4 billion it fetched from Flipkart’s sale to Walmart in 2018. Since then, the group has made a return to Flipkart by backing it again in 2021.

The firm’s most recent exit from a privately held company in India was in eyewear retailer Lenskart, when Abu Dhabi Investment Authority invested $500 million in it. The Japanese firm is learnt to have garnered about $90-100 million from the Lenskart deal.

The selling streak for SoftBank comes amid a technology rout in the public markets faced by tech heavy investors. On Wednesday, the Financial Times newspaper reported that SoftBank was expected to sell almost all of its remaining shares in the Alibaba Group, keeping only a 3.8% stake in the Chinese ecommerce behemoth.

FirstCry financials

FirstCry is among a small group of profitable online-first Indian businesses. While its audited results for the financial year ended March 31, 2022, are yet to be filed with the ministry of corporate affairs, people aware of the numbers said it is expected to post a profit, excluding cost towards employee stock ownership plans.

For the financial year 2021, FirstCry reported a net profit of Rs 216 crore, compared to a loss of Rs 191 crore the previous year. Revenue rose to Rs 1,603 crore in FY21, from Rs 814 crore the year before.

The retailer has more than 650 offline stores too. It also owns an ecommerce roll-up platform, Globalbees, which is valued at $1.1 billion. Globalbees has acquired more than 26 firms, with a bouquet of 55 brands.

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