PE players to get selective on deals

Experts see company-specific transcations rather sector-specific.

Private equity (PE) experts expect more transactions and buyouts resulting in PE firms acquiring controlling stakes in companies in 2008 despite a slowdown in deals this year over the last year.

Sumit Chandwani, director, investments, ICICI Ventures, says, "People will focus more on their core competencies and will sell out non-core assets, thus leading to more buyout deals happening."

The PE activity will be tougher this year as it will be company-driven rather than sector-driven investing. Real estate will continue to be one of the hottest sectors followed by infrastructure.

Says P R Srinivasan, the managing director of Citigroup Venture Capital International, "A large amount of capital will come into real estate. PIPE (Private Investment in Public Enterprise) deals are still struggling and we have already seen lesser deals happening in the March 2008 quarter compared with those in the last year. At Citi also, this number has been quite less."

Experts also feel that there will be many unsuccessful deals as uncertainty has still not been priced into promoters' expectations. Mark Silgardo, senior managing partner, IL&FS Investment Managers, said, "There will be an adjustment period and I think the last six months of this calendar year will be better from an investment point of view."

Adds Chandwani, "What will differentiate one firm from another is their execution capabilities. Companies will have to execute on opportunities. Even though infrastructure is a great opportunity, it is yet to be seen if companies deliver on targets. Raising new funds at this point of time will be difficult for private equity funds."

Analysts emphasise that private equity players bring a lot of value to a company that is planning to go public. For example, it helps in improving governance practices, getting quality management on board, inorganic growth as well as risk management structure.

"Public markets are very demanding in terms of quarterly performance. Therefore, companies need a lot of preparation before going for an IPO," said Chandwani. Significant value addition will determine returns for private equity in 2008. For PE players, it will be much harder as it will be more value-driven than growth-driven, adds one of the experts.