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Exclusive: SIS to buy TVS Capital-controlled Dusters Total Solutions Services

CX Partners-backed Security and Intelligence Services (India) Ltd (SIS), a New Delhi-based security solutions and business support services provider, is close to acquiring facility management company Dusters Total Solutions Services Ltd (DTSS), two person close to the development told VCCircle.

The deal would held IPO-bound SIS to diversify further into soft services business.

Bangalore-based DTSS works exclusively in facility management activities, supplying man-power to companies for services such as cleaning, dust control, office logistics etc while SIS is known for providing manguarding services, surveillance and cash logistics with a small portfolio of facility management business.

One person said that SIS is paying Rs 225 crore ($34 million) to buy DTSS. Private equity firm TVS Capital owns 51% stake in DTSS and shall get around Rs 115 crore ($17.4 million).

This would allow it to take twice what it invested six years ago. TVS Capital had invested around Rs 58 crore in DTSS in multiple tranches starting in 2009. As first reported by VCCircle in May 2015, it had initiated a plan to exit the company in late 2014 and originally expected to close it by June 2015.

The transaction is in the last stages of completion and is expected to be announced in one or two weeks, one of the two persons cited above said. Initially, SIS would get 76% stake in DTSS, and would later increase it to 100%, he added.

When contacted, Gopal Srinivasan, chairman and managing director of TVS Capital, said: “Sorry we don't comment on these matters. As a fund, we are always open to buyers who can progress our companies to the next orbit, provided we secure a fair value.”

“Please be advised that information contained in your email is not correct and reporting incorrect information will have adverse market implications for SIS’s impending IPO plans,” Uday Singh, group CEO of SIS said in a written response.

An email query sent to DTSS went unanswered.

The persons cited earlier said Equirus Capital is advising DTSS on the deal. An email to the investment bank did not elicit any response either.

Dusters Total Solutions Services
DTSS' promoters Samsher Puri and Jasmer Puri started the facility cleaning and office support services company Dusters Hospitality Services Pvt Ltd in 1994 at Bengaluru. To expand its base and explore opportunities in Mumbai, Total Solutions Facility Management Pvt Ltd was setup in 1998.

It acquired Facilitec Services, a Singapore- and Bangalore-based FMS provider specialising in the service, operations and maintenance of electrical and mechanical systems, in 2010.

The company also acquired the Indian business of Malaysia’s Sinar Jernih (known as Prostar Hospitality Services Pvt Ltd in India) in FY11 that brought expertise in hospitality and healthcare services.

It has 23,000 employees offering soft services, technical services, pest management services, business support services, cleaning services and pharmaceutical services to 800 clients in 35 cities.

Some of its clientèle includes Jones Lang Lasalle, CBRE South Asia, JP Morgan, Future group and Fortis Hospitals.

The company doubled its revenues and its operating profit rose some six times in the four years between FY11-FY15. It closed the year ended 31 March 2015 with net revenues of Rs 283 crore and net profit of Rs 2.7 crore.

The company has a strong presence in southern and eastern markets and is looking to deepen the market presence by targeting tier II markets.

SIS
Established in 1974 , SIS is promoted by RK Sinha and has three subsidiaries and two JVs which are engaged in security, cash and facilities management services.

It is one of the top manguarding firms in Asia Pacific and had net revenues of Rs 3,723 crore for the year ended 31 March, 2015 (previous year - Rs 3,226 crore) and an EBITDA of Rs 184 crore (previous year - Rs 170 crore).

Over half of its revenues are from international operations. It's India business is also growing at a faster rate than industry peers.

The firm that is eyeing a public float soon, had previously attracted private equity funding from DE Shaw in 2007. Three years ago CX Partners bought out DE Shaw's stake to become a key stakeholder. CX Partners is expected to part or fully exit in the proposed IPO.

The firm has hired Axis Capital, Kotak Investment Bank and ICICI Securities as merchant bankers to manage the issue, according to separate media reports.

Facility management opportunity, M&As
The facility management and related space has seen several deals in the last one to two years.

Fairfax-controlled Quess Corp (earlier Ikya Group), which is a subsidiary of tour operator Thomas Cook (India) Ltd and had a stellar listing last month, has been growing through acquisitions, diversifying and creating a string of services. It has acquired 10 companies since 2010 and plans more inorganic expansion going forward.

In other deals, Mumbai-based SILA acquired 51% stake in Envocare Pest Control; India Value Fund Advisors (IVFA) and former Godrej Consumer Goods’ executive Arumugham Mahendran jointly acquired ISS Hicare, the second-largest pesticide services company in the country; ValuePro International Pvt Ltd acquired city-based indoor plants firm Gardenia Ornamental.

In another PE exit deal, ICICI Venture sold back its 40% stake in Chennai-based Updater Services Pvt Ltd back to the promoters.

All these firms are looking to tap on to the growth opportunity with the facility management industry projected to grow at 23-24% annually over the next 3-4 years.

According to F&S Research and Analysis, the industry is expected to grow from Rs 8,414.7 crore in 2015 to around Rs 20,000 crore by 2019.

Facility management is emerging as a strong business in the commercial services sector though it is yet to gain significance in the residential space. It is slowly catching up though, particularly in gated residential communities in urban India.

“The market dynamics is shifting from single service contract model with multiple vendors to an integrated model with a single vendor. Increase in consumables, manpower and management cost have impacted the cost of FM services, forcing customers to replace long-term contracts and providing momentum for Integrated Facilities Management (IFM) contracts in India,” according to a note prepared by Quess Corp at the time of its IPO.

Major players in the space in India include Sodexo India On-site Service Solutions Pvt. Ltd, ISS Integrated Services Pvt. Ltd, Compass Group India Support Services Pvt. Ltd, Avon Facility Management, BVG India Limited and Updater Services India Ltd.

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Equirus Capital Pvt. Ltd. is an investment banking firm. It offers financial advisory in the field of mergers and acquisition, private equity, capital markets, institutional equities and structured financing including real estate and infrastructure financing. The firm caters to the requirements of the consumer, financial services, healthcare, and pharmaceuticals, auto components and chemicals, infrastructure and real estate and technology and business services sectors. The company was founded in 2007 and is based in Mumbai, Maharashtra.

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