The Rs 3,000 crore Tata Tea is close to acquiring a South African tea company for an undisclosed sum. Informed sources said the deal is likely to be finalised in the next three to four months.
"The company is a relatively small player in the South African market and we will be looking at either an acquisition or a joint venture. It is a black tea producer with a good distribution system in place. We are looking at leveraging this for our brand," a top company official said.
Some popular brands in the South African tea market are Lipton, National Brands and Cape Natural, among others.
There is a huge NRI population in South Africa which Tata Tea will be tapping through acquisitions in this region. Apart from South Africa, the company is also looking at markets like the US and Russia very seriously," an FMCG analyst said.
The company is also looking at acquiring green, herbal and fruit-based tea companies as well as soft drink companies in developed markets, as these are growing faster than normal or black tea.
We are looking at areas in which we are not present, either through our brands or acquisitions. The areas we would be looking at are special tea, ready-to-drink (RTD) and black tea," said PT Signaporia, MD, Tata Tea.
Other businesses the company will focus on are out of home consumption and new businesses like iced tea and tea concentrate, which is popular in fast food chains in the US and Canada.
Some of the countries on Tata Tea's radar are Russia, Poland, Bangladesh and Pakistan, among others. One of the problems the company is facing while negotiating deals with local players in foreign markets is that companies are asking for huge multiples.
For instance, a company with a $6 million turnover and reporting losses, quoted a price of $100 million, according to a source from the Tetley Group. If the South African deal comes through, Tata Tea will be adding it to their recent series of acquisitions. On October 5, Tata Tea acquired FMALI Herb and Good Earth Corporation through its US subsidiary -- Tetley US Holdings for an undisclosed amount.
Good Earth is a speciality tea brand with a 3.7% share of the US speciality tea market and an estimated turnover of $16 million.