Pinaki Paul

Reliance Retail is working on a series of mergers and acquisitions (M&As) in a backward integration move that will allow it a larger control over supplies to its stores.
To begin with, the company plans to pick up 50 manufacturers and processors in calendar 2008. According to a senior Reliance Retail executive, most of them will be small and mid-sized manufacturing entities. The company is in the process of identifying what he called ‘the potential partners’.
The retail company will spend up to Rs 5,000 crore on the M&As and has earmarked a corpus for the same. It is looking for M&As in areas such as apparel, footwear and consumer durables.
Reliance Retail is not treading the conventional path to M&As. “We are not looking at deals to run businesses. It’s a strategic partnership that we are looking at.”
Its executives have touched base with banks that lend to SMEs. Once the potential partners are identified, Reliance Retail will directly contact the SMEs and offer to pay off not only the debt, if any, of the owner but also pay an add-on premium, depending on the valuation. This done, the owner will continue to oversee day-to-day operations of the factory. The only change will be that he will have to compulsorily supply products exclusively to Reliance Retail. Industry watchers see this as an attempt to meet the threat from international majors.
The M&A plan is evidently intended to secure its back-end support system, but it could also have the effect of narrowing the vendor base for companies such as Wal-Mart, Carrefour and Metro.
Current policy does not allow foreign retail chains to set up similar businesses in India, but they are allowed to set up cash & carry (wholesale) ventures. Metro, the German chain, already has a shop in Bangalore and is looking at expanding into north India.
Wal-Mart, the world’s biggest retailer, is expected to soon start rolling out wholesale stores in a 50:50 joint venture with Bharti Enterprises.
Carrefour of France, too, has announced that it will start its Indian foray sometime this year. “Sourcing is the biggest challenge facing organised retail companies in India.
Reliance Retail seems to be ensuring for itself the first-mover advantage before the foreign players set the ball rolling,” says Dhruv Prashar, COO of retail consultancy Decube Retail Plus.