Private equity (PE) firms in India prefer to be minority stakeholders in their target companies. According to a study, only 4 per cent of the total deals in the last four years were to acquire a controlling stake.
The study by domestic brokerage firm SMC Capitals said, “In the period between 2005 and the first quarter of 2009, there were only 46 ‘controlling stake’ transactions out of total 1,185 number of PE transactions during the period in India.”
The controlling stake deals include those where an investor acquires 50 per cent or more in the investee company. Such deals in India are lower than the global average, both in terms of number as well as value.
In terms of number, only 4 per cent of total PE deals had acquired a controlling stake in the target company. In value terms, of the $40.87-billion total PE transactions in the period under review, only $2.48 billion represents ‘controlling stake’ transactions, indicating 6 per cent which is also lower than the global average of 18-20 per cent.
“This is probably because Indian promoters are ‘emotionally’ attached to their companies as compared to promoters in developed markets,” SMC Capitals Equity Head Jagannadham Thunuguntla said.
“Another reason could be the lack of quality managerial talent in India, which may be preventing PE investors to go for more controlling stake transactions wherein they have to manage the companies after the deal,” he said.
In 2005, there were as many as 124 PE deals with a total value of $2 billion. Of these, there were only five controlling stake deals with an announced value of $150 million, the study said.
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In 2006, there were 302 PE deals worth $8 billion, and controlling stake deals amounted to only 13 with an announced value of $1.19 billion, it said.
There were 11 controlling stake deals worth $0.70 billion in 2007, and in 2008, there were 14 such deals worth $0.33 billion.
In the first quarter of this year, there were 42 PE deals worth $0.9 billion and only three were controlling stake deals worth $0.11 billion.