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Malabar Investments Set to Acquire Stake in SUGAR Cosmetics in a Secondary Deal

Malabar Investments is in talks to acquire a stake in SUGAR Cosmetics through a secondary deal, signaling the beauty brand's strong market position and potential for an IPO.

Malabar Investments, a prominent investment fund with a focus on the Indian market, is reportedly in advanced discussions to acquire a stake in SUGAR Cosmetics, a leading beauty brand based in Mumbai. This acquisition is expected to be facilitated through a secondary transaction, with early investors of SUGAR Cosmetics potentially making partial exits.

The deal is anticipated to be valued between INR 80-100 Cr, positioning SUGAR Cosmetics at an impressive valuation of approximately INR 2,900 Cr (around $350 Mn). Early investors in SUGAR Cosmetics, such as RB Investments and India Quotient, along with several angel investors and family offices, are expected to see partial exits if the deal comes to fruition.

This strategic move by Malabar Investments is particularly noteworthy as it targets companies on the brink of an initial public offering (IPO). The involvement of Malabar Investments not only highlights SUGAR Cosmetics' potential for an IPO but also signals the possibility for other pre-IPO investors to join the fray.

The details of the deal, including the allocation of exits among investors, are currently being ironed out. While a term sheet has been prepared, final agreements are yet to be reached.

Malabar Investments, led by Sumeet Nagar, a former McKinsey executive, is known for its keen interest in consumer-focused startups, having previously backed notable companies like boAt, Bombay Shaving Company, and Ixigo. The firm primarily invests in small and mid-sized public companies, and the acquisition of a stake in SUGAR Cosmetics would further bolster its portfolio in the consumer sector.

A spokesperson from SUGAR Cosmetics acknowledged the strong interest from both domestic and global private equity funds, attributing it to the company's recent achievement of profitability in December of the previous year. As a result, there's no immediate need for primary investment, opening the door for secondary stake purchases by interested funds.

Founded in 2015 by Singh and Kaushik Mukherjee, SUGAR Cosmetics initially embraced a direct-to-consumer (D2C) approach before pivoting to an omnichannel model. Today, the brand boasts a presence in over 40,000 retail outlets across more than 550 cities in India and offers a wide range of products in lips, eyes, face, nails, and skin categories.

SUGAR Cosmetics has experienced significant growth, with sales nearing the INR 500 Cr mark in the fiscal year ending March 31, 2023. The company's operating revenue saw an 89% increase year-over-year, reaching INR 420.2 Cr in FY23.

This development is a testament to the growing interest in India's beauty and personal care sector from investment communities, highlighting SUGAR Cosmetics' position as a leading player in the market.