Pvt equity firms changing tack

The share of private equity (PE) investments in listed companies, which accounted for a third of all investments during 2005, declined to 22 per cent in 2006.

Private equity firms made about 66 investments worth $1,576 million in listed companies in 2006, while they invested $7.5 billion in the country in 2006, with 26 deals involving investments of over $50 million each.

Although the markets are scaling record highs, the preference by private equities for listed companies seems to be changing.

According to Venture Intelligence, a research service focused on private equity and venture capital activity, some of the largest investments were Farallon Capital's $143 million in Indiabulls Financial Services, ICICI Venture and Bank Muscat's $91 million investment in Centurion Bank of Punjab and the $88 million raised by Amtek Auto from a clutch of PE investors, including New Vernon and D E Shaw.

"The only time PEs look for listed companies is when they look at management buyout. Earlier, most companies used to go for public listing, now they prefer private equity investments," said, S Subramanian, head of investment banking, Enam Financial Consultants. Arun Natarajan, CEO, Venture Intelligence, said: "With almost all sectors in the economy growing rapidly and over 5,000 listed companies in the country, there are enough options for PE investors to choose from in the universe of listed companies."

The logic seemed to be not to take liquidity risk of investing in unlisted companies when listed companies, including those in attractive sectors such as pharma, auto components and BFSI, were growing at over 20 per cent, he added.

Another senior executive of a leading private equity company said: "Whenever we have invested in listed companies, they were at that time unlisted and were not able to attract good valuation. We always invest in companies, whether listed or unlisted, where we have good relations and are able to get a good valuation.

Investment bankers feel that private equity investors always look at getting a good deal, be it for unlisted or listed companies.

They want big deals of $20-50 million, which they sometimes don't get in unlisted companies. It also depends a lot on their exit strategy. During 2006, over 70 per cent of VC investments, that is, investments in early- and growth-stage companies, went into IT and ITES companies.

Within IT and ITES, sectors such as internet-based services, mobile VAS as well as focused BPO and IT services companies attracted VC interest.