The Competition Commission of India (CCI) has granted approval to Tata-backed Titan for its proposal to acquire an additional 27.18% stake in the jewellery startup CaratLane.
“CCI approves acquisition of additional shareholding in CaratLane by Titan. The proposed combination relates to the acquisition by Titan of 27.18% share capital of CaratLane, on a fully diluted basis, from Mithun Padam Sacheti, Siddhartha Padam Sacheti, and Padamchand Sacheti,” the competition watchdog said in a statement.
This paves the way for the deal that was announced earlier this year. In August, Titan disclosed the signing of a share purchase agreement, outlining its intention to acquire an additional shareholding in CaratLane for a total of INR 4,621 Cr.
The transaction valued the startup at an impressive INR 17,000 Cr ($2 Bn). At that time, Titan announced its intent to acquire 91.9 Lakh equity shares from a ‘founder’ of CaratLane, with the financing of the deal to be accomplished through a blend of cash balances, internal accruals, and debt.
In 2016, Titan initially acquired a controlling stake in the jewellery brand at a valuation close to $69 million.
Now that the deal has been approved, employees are anticipating a significant windfall, with expectations of receiving between INR 340 Cr to INR 380 Cr through an ESOP buyback by Titan, which is set to secure a 100% stake in the startup.
Established in 2008 by Sacheti and Srinivasa Gopalan, CaratLane is an omnichannel startup specializing in the production and sale of jewellery items in both India and the US. In the financial year 2022-23 (FY23), it recorded a total income of INR 2,177 Cr, marking a 71% increase from INR 1,267 Cr in FY22.
After the deal was disclosed, CaratLane underwent a significant leadership transition, with co-founder and Chief Operating Officer (COO) Avnish Anand being promoted to the position of CEO of the ecommerce platform in August. This change occurred shortly after co-founder Sacheti, Anand’s former boss, departed from CaratLane.
Nevertheless, the deal has encountered its share of difficulties. Immediately after the transaction was announced, the startup contested a prior show-cause notice (SCN) issued by the Enforcement Directorate (ED). The notice alleged that between 2011 and 2014, CaratLane breached FEMA rules by accepting foreign direct investment (FDI).
The show-cause notice (SCN), delivered in March 2022, revolved around the contention that foreign direct investment (FDI) was restricted in multi-brand retail companies until 2011. Nevertheless, it is reported that Tiger Global invested in the startup in 2011 and continued to participate in subsequent funding rounds over the following three years.
Following that, foreign direct investment (FDI) was permitted for multi-brand retail companies in September 2012. However, it came with the stipulation that such investments required prior approval from the former Foreign Investment Promotion Board (FIPB) and were subject to certain conditions.
As the case remains unresolved before an adjudicating authority, CaratLane has reportedly enlisted legal assistance from a former Chief Justice of India (CJI). According to reports, the former CJI has expressed the opinion that CaratLane is not in violation of FEMA, asserting that the regulation is applicable to the B2B sector and not retail trade.
In the meantime, CaratLane is poised to join the list of startups under almost complete control of the Tata Group. The group’s portfolio also includes startups such as 1mg and BigBasket.