Client buys stake


The trend now is to buy a stake in vendor’s company because of the large volume of supplies from the vendor. This is a strategic deal with a purpose. The main reasons can be

1. Assured and continuous supply
2. Competitive procurement prices enabling the client larger market share.

The textile industry is taking a cue from the IT sector. This is similar to the strategic deals in IT sector where clients pick up a stake in vendors. Two US based companies, Sunham Home Fashion and Bristol associates have acquired 8.85% equity stake in Minar international, a leading Indian textile exporter.

Minar international gets 90% of the company’s revenue from the US market. Both Sunham and Bristol source a large portion of their product requirements from Minar. The relationship is further strengthened by making a financial investment in the company. A textile analyst pointed out that this is first of its kind deal in the industry where the client is acquiring a stake in the company from which it sources.

The trend is more visible in the IT sector. For instance, GE has a small equity interest in Patni Computers.

Apart from betting big on US market, the Rs300cr Mumbai based Minar International has recently started focusing on the European market. Both US and European Union account for 70% of the world’s total textile imports and is growing at 5% and 10% respectively.

To meet the increasing demand Minar is setting up another processing unit.

The company is planning to raise funds through an IPO setting up another unit. The project is expected to cost $34 million. The company has two stitching and finishing units near the metro city of Mumbai, India.. The current Indian owners hold a 69% stake in the company. Their holding will come down to 65.18% post IPO. Sunham and Bristol’s stake would also stand reduced to 6.32% after the issue.

As part of its expansion plans, Minar is looking forward to entering the domestic market by launching its products under the Sweet Home brand.

India is one of the top three suppliers of home textile products. Almost 80% of India’s annual $1.2 billion exports are shipped to the US and EU. The other major players are Bombay Dyeing, Welspun India and Alok Industries.

A question may arise that why the client is not acquiring the vendor. There again may be several business related reasons but two main reasons being ‘Focus’ and ‘Expertise’.

Focus is required on the part of the client to increase the market share when they are able to get the material from their own partnership company at competitive prices.

The expertise the vendor has gained in manufacturing cannot be absorbed overnight by the client. Moreover this can distract the client’s marketing focus. Therefore the best option is to acquire a partial stake or partial ownership. The advantages of the partial stake are highlighted above.