Private equity tries to get foot in India's door
Monday, 26 November 2007
Joe Leahy and Sundeep Tucker
PRIVATE equity firms have been constrained in India by the predominance of family-owned businesses, a lack of large buy-out opportunities and restrictions on the financial leverage that buyers can use.
A recent survey by KPMG found that only 37 per cent of 119 private equity funds active in the Asia-Pacific region had investments in India, compared with 61 per cent in China.
However, 63 per cent of the firms said they would be targeting India in five years compared with 74 per cent for China. Taiwan was in third place with 38 per cent.
David Nott, regional leader of KPMG's Asian private equity group, says: "The findings suggest that the number of private equity firms set to invest in India over the next five years is going to jump."
India is already booking record private equity deal volumes. In the year to date, there have been 121 deals worth a total of $5.9bn in India compared with 112 valued at $3.9bn for all of last year, according to figures from Dealogic.
The increase comes as Indian companies are looking to expand beyond their shores, in some cases with the help of private equity. Blackstone this year joined a management buy-out of Intelenet Global Services, a back-office processing company partly owned by Barclays. Blackstone won the deal by promising to help Intelenet market its services to the private equity group's portfolio companies.
With the controlling families of Indian companies in many cases entering their third or fourth generations, there will also be more medium-term opportunities for buy-outs.
There has been much recent talk, for example, about Patni Computer Services, in which two of the three brothers who control the company are looking to sell to private equity.
In an interview with the Financial Times, David Rubenstein, co-founder and managing director of the Carlyle Group, said Asia was becoming an increasingly competitive area for global private equity, in part because of competition from strategic buyers and the growth of local funds.
He said: "We recognise the appeal of local currency funds in countries such as China and will try to be as local as we can."
Mr Rubenstein acknowledged that India had proved to be a tougher market than people had thought, but added: "If you consider its size and growth rates, you cannot afford not to be there. We plan to expand there also."
Global firms such as Apax Partners of Europe and Providence have flocked to open offices in India in the past 12 months. Among the investment banks, Goldman Sachs has been one of the most active, with about $1.0bn invested in the past year by the group's in-house Principal Investing Area unit and a number of funds, including its Infrastructure Fund and Whitehall, its real estate fund.
Kohlberg Kravis Roberts last year carried out the country's biggest management buy-out and private equity deal, paying $900m for Flextronics Software Systems, the telecommunications outsourcing company now called Aricent.
But KKR has yet to enter India formally and is looking for a country head. Others not yet present include Apollo, Bain Capital and Fortress.
When they do arrive, they will find a different environment from what they are used to elsewhere. The country's biggest deal after KKR's Flextronics takeover - Carlyle's acquisition of 5.63 per cent of publicly listed Housing Development Finance Company for $650m - is more typical of the way private equity firms have been doing business in India.
With India's economy booming, controlling shareholders remain reluctant to give up control of their fast-growing companies. A robust share market also means they are not short of capital.
Sri Rajan, head of Bain Consulting's private equity practice in India, says: "All these family-run companies, if they want money there are so many places to get it from now - they can go to public markets, they can go to capital markets."
Leveraged buy-outs, hostile takeovers and investor activism are difficult in India for regulatory reasons, so in the near term, private equity firms will have to be content with buying stakes of 10-15 per cent in companies, often just before or after their initial public offerings.
One senior private equity operator in Mumbai says: "Once you accept that in India you will have deals in this category, then the pipeline is not an issue."
.........................................
FT Syndication Service
PRIVATE equity firms have been constrained in India by the predominance of family-owned businesses, a lack of large buy-out opportunities and restrictions on the financial leverage that buyers can use.
A recent survey by KPMG found that only 37 per cent of 119 private equity funds active in the Asia-Pacific region had investments in India, compared with 61 per cent in China.
However, 63 per cent of the firms said they would be targeting India in five years compared with 74 per cent for China. Taiwan was in third place with 38 per cent.
David Nott, regional leader of KPMG's Asian private equity group, says: "The findings suggest that the number of private equity firms set to invest in India over the next five years is going to jump."
India is already booking record private equity deal volumes. In the year to date, there have been 121 deals worth a total of $5.9bn in India compared with 112 valued at $3.9bn for all of last year, according to figures from Dealogic.
The increase comes as Indian companies are looking to expand beyond their shores, in some cases with the help of private equity. Blackstone this year joined a management buy-out of Intelenet Global Services, a back-office processing company partly owned by Barclays. Blackstone won the deal by promising to help Intelenet market its services to the private equity group's portfolio companies.
With the controlling families of Indian companies in many cases entering their third or fourth generations, there will also be more medium-term opportunities for buy-outs.
There has been much recent talk, for example, about Patni Computer Services, in which two of the three brothers who control the company are looking to sell to private equity.
In an interview with the Financial Times, David Rubenstein, co-founder and managing director of the Carlyle Group, said Asia was becoming an increasingly competitive area for global private equity, in part because of competition from strategic buyers and the growth of local funds.
He said: "We recognise the appeal of local currency funds in countries such as China and will try to be as local as we can."
Mr Rubenstein acknowledged that India had proved to be a tougher market than people had thought, but added: "If you consider its size and growth rates, you cannot afford not to be there. We plan to expand there also."
Global firms such as Apax Partners of Europe and Providence have flocked to open offices in India in the past 12 months. Among the investment banks, Goldman Sachs has been one of the most active, with about $1.0bn invested in the past year by the group's in-house Principal Investing Area unit and a number of funds, including its Infrastructure Fund and Whitehall, its real estate fund.
Kohlberg Kravis Roberts last year carried out the country's biggest management buy-out and private equity deal, paying $900m for Flextronics Software Systems, the telecommunications outsourcing company now called Aricent.
But KKR has yet to enter India formally and is looking for a country head. Others not yet present include Apollo, Bain Capital and Fortress.
When they do arrive, they will find a different environment from what they are used to elsewhere. The country's biggest deal after KKR's Flextronics takeover - Carlyle's acquisition of 5.63 per cent of publicly listed Housing Development Finance Company for $650m - is more typical of the way private equity firms have been doing business in India.
With India's economy booming, controlling shareholders remain reluctant to give up control of their fast-growing companies. A robust share market also means they are not short of capital.
Sri Rajan, head of Bain Consulting's private equity practice in India, says: "All these family-run companies, if they want money there are so many places to get it from now - they can go to public markets, they can go to capital markets."
Leveraged buy-outs, hostile takeovers and investor activism are difficult in India for regulatory reasons, so in the near term, private equity firms will have to be content with buying stakes of 10-15 per cent in companies, often just before or after their initial public offerings.
One senior private equity operator in Mumbai says: "Once you accept that in India you will have deals in this category, then the pipeline is not an issue."
.........................................
FT Syndication Service