French private equity fund in race to buy Lilliput?

The several controversies surrounding children’s clothing company Lilliput may soon be put to rest: a Business Standard report suggests the company could be sold to L Capital , a private equity fund sponsored by luxury group LVMH and Groupe Arnault, which has emerged as the front-runner to buy Lilliput’s retails assets, brand and liabilities.

“L Capital negotiations are at an advanced stage. We are hoping to close the deal within a few week”, a senior Lilliput executive told the newspaper.

The luxury brand group has pipped other contenders like Mahindra & Mahindra, private equity fund Kohlberg Kravis Roberts & Co and India Value Fund.

[caption id=“attachment_234125” align=“alignleft” width=“380” caption=“Lilliput’s problems erupted last year when Bain Capital became suspicious about the company’s accounts. Reuters”]  [/caption]

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The sale is the result of an escalating and increasingly public feud between the promoter of Lilliput, Sanjeev Narual, and private equity investors Bain Capital and TPG since last year. The infighting had become so bad that the company’s lenders refused to provide further funds to the company. That left Narual, who has a majority stake in Lilliput, so short of funds that the company had to offer up to a 30 percent discount at its stores . Narual also admitted that the company was unable to service its debt of Rs 700 crore.

Lilliput’s problems erupted last year when Bain Capital became suspicious about the company’s accounts and eventually withdrew their nod for the company’s IPO. Narual, in turn, accused them of trying to raise issues in a bid to seize majority control. Bain and TPG had invested $86 million for a 45 percent stake in April 2010.

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L Capital is no stranger to India: it recently picked up an 8 percent stake in Fab India and acquired a 25 percent stake in Genesis Luxury Fashions. It also launched a $640 million fund last year targeting emerging economies like China and India.

Acquiring Lilliput will give L Capital entry into a growing children’s wear market in India. According to BS, the organised kidswear market in India is estimated at Rs 3,000 crore; Lilliput is believed to have a market share of 14.7 percent.

Another report has said that L Capital may also be planning to invest USD 150 million or Rs 750 crore in Raymond Apparel. However, Raymond has in a release to BSE denied any such reports.