New Delhi | Mumbai | Bangalore

LEVERAGE YOUR STATUS QUO FRANCHISE KNOWLEDGE SERIES : FRANCHISE INDIA

2013

By Aparna Mittal Partner

Corporate / M&A / Franchise and Retail

October 20, 2013

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RETAIL SECTOR IN INDIA: A PHENOMENAL GROWTH STORY

Indian retail market estimated to be USD 500 billion

One of the top five retail markets in the world.

Accounts for 14-15% of India’s total GDP.

Organized retail sector growing at 20% growth rate per annum.

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LEVERAGE YOUR STATUS QUO

Understanding Potential of the Business and the Markets

Understanding the Regulatory Framework

Commercial Due Diligence on the Market

Forward Looking Financial and Strategic Business Plan

Identification of partner : Goals, Synergies, Ethics and Long term Strategy

Pure Franchise : No equity or financial investment from franchisor

Joint Venture (franchise / brand license and financial investment- equity vs debt )

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FOREIGN DIRECT INVESTMENT

Foreign Direct Investment Policy

• Automatic Route vs Approval Route .

• Sectoral Caps – Depending on industrial sector (hotel, food, retail etc).

• Upto 100% FDI, under the automatic route, in wholesale trading (with conditions)

• Upto 49% FDI, under the automatic route, in single brand retailing (with conditions)

• Upto 51% FDI, under the approval route, in single brand retailing (with conditions)

• Upto 100% FDI, under the approval route, in single brand retailing (with additional conditions)

• Upto 51% FDI, under the approval route, in multi brand retailing (with conditions)

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KEY ISSUES : GROWTH & EXPANSION

Funding :

• Access to domestic market

• External Commercial Borrowings (eligibility issues and end use restrictions)

• Financial Investment by Franchisor (including staggered buy outs)

• Third Party / Private Equity Funding : Viability and Terms

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KEY ISSUES : GROWTH & EXPANSION

Private Equity Funding :

• Viable route for funding

• Global best practices

• Corporate Governance

• Long term value creation

• Window dressing for going public / strategic sale

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KEY ISSUES : GROWTH & EXPANSION

Defining scope of the alliance

Allocation of Responsibilities and Degree of Control

Duration and Milestones

Investment Outlay and Funding Commitments

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KEY ISSUES : GROWTH & EXPANSION

Non compete : Products, Activities, Duration, Geographical Extent

Thresholds for Performance and Creative Solutions

Right of First Refusal for new business / products/ activities

Termination and Exit

Intellectual Property Rights and Protection

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Thank You

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Aparna Mittal Partner

Email: amittal@luthra.com

© Luthra & Luthra Law Offices