In spite of eroding confidence of private equity (PE) firms during the global downturn, a clutch of big global names, who till now were not confident about India, have taken the plunge into Indian markets.
These big PE players, such as Quadrangle Capital, Appollo Management, TA Associates, Summit Partners and Bain Capital, have done a deal for the first time in India, marking their entry into one of the fastest growing emerging markets.
While some of them had set up shops in the country in 2008-09, they were unable to do deals because global markets went into a tailspin. Already, some of the global PE majors such as Blackstone, Carlyle, General Atlantic, Apax and 3i are present in India, but the entry of new PE funds into the Indian market shows their growing appetite for Indian companies.
Investment bankers say most of these PE firms are actively scouting for deals and are no more dormant.
Quadrangle Capital, one of the new entrants, is a global PE fund based out of New York with more than $3 billion in assets under management. Quadrangle invested in Tower Vision, a Gurgaon-based independent tower management company. Similarly, buyout major Apollo Management struck its first deal by picking up an 11 per cent stake in Dish TV, a prominent direct-to-home satellite television service provider. The fund has pumped in $100 million (nearly Rs 445 crore) through Global Depository Receipts.
TA Associates invested $45 million (over Rs 200 crore) in Micromax Informatics, a Delhi-based handsets maker. In yet another deal, Bain Capital invested in Himadri Chemicals through preferential allotment, and more recently in Lilliput, a leading kidswear manufacturer. Though Bain had set up shop in in late 2008, it was able to strike a deal only by the end of 2009.
“Pretty much no deal happened in India for about a year starting from just before we started our India office. Valuations post-crash (downturn) were more compelling but that has been short-lived. The bigger issue was that most companies did not want to raise equity in that period unless distressed. Once markets reopened, we announced our first deal in December 2009 and our second deal a few days back,” said Amit Chandra, managing director, Bain Capital Advisors.
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“With leverage not being available, the buyout market in the West has almost died. So, we are seeing a lot of these investors turning to India to capture the growth potential. In 2007, valuations were at their peak, so even if somebody wanted to enter India, they were finding it difficult to do deals. Post-2008, the global financial crisis made everything topsy-turvy and the flow of deals almost dried up. So, now that the markets have opened up and valuations are much sane than they were, the PE funds are capitalising on it,” said Arun Natarajan, CEO, Venture Intelligence, a PE and VC tracking firm.
According to Grant Thornton, there were a total of 67 PE deals including QIP from January to March 2010 as compared to 47 during the same period in 2009. The value of such deals was $2,395 million, up 155 per cent from $941 million during January-March 2009. A majority of the PE deals were in consumer sectors, pharma and financial services.
“There is clearly a shift from developed to emerging markets among global investors. And within that India is a bright spot because of the growth and capital appreciation that it offers. Foreign investors feel that India is a much better regulated market and has weathered the financial storm quite well. Interest levels for India will go up with the earnings growth being more visible now,” said Bharat Banka, CEO, Aditya Birla Private Equity.