The first marriage was between two marquee private equity funds and a kid-wear maker. The second marriage was between one asset manager and another. The third was between an institution-backed fund and a bio-fuel maker.
What is common between them? A) They are all in trouble and B) In each, company was Indian and the investor an American.
Marriages are never easy, movies and newspaper stories tell us every day, even among same cultural groups. When you add international flights to them, single-language mother-in-laws and mischievous cousins, they are often on the fast track to you-know-where, unless managed diligently.
Even private equity marriages can get derailed by such external irritants, as our American suitors are finding out the hard way. Despite having several hundred pages of agreements and putting in clauses to discourage wayward behaviour, they have not been able to rein in that peculiar Indian beauty called promoter.
Often, all it takes is one global crisis (we have so many these days), a key appointment or a missed milestone to rock the boat. Investors often expect the share purchase agreement, which they get promoters to sign at the time of investment, to be followed to the last word.
Promoters, indeed follow it to the last word, but only when it suits them. In all the three marriages discussed above, the investors found the share purchase agreements useless.
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In one, the promoter has dragged the investors to court. In the second, the investor is struggling to veto an appointment. In the third, the matters have come to such a pass that even a full takeover cannot recover anything for the investors.
What is the way out? Many times, investors cut their losses and move on. Often, they do not have a choice. Some managers I spoke to recently say it is not just the share purchase agreement; enforcement of any contract is difficult in India.
The more complex and structured the agreement, the harder it is for the investors to make the owners fall in line. Promoters also use the threat of time-consuming legal processes in enforcing these contracts and get away.
In a difficult environment, such bad marriages only add to the woes of managers who are on road to raise money. Reports of malpractices by the managers are not helping, either.
If you want to see light as we come close to the end of the tunnel, then you can dismiss these, as a teething troubles of a maturing industry.
With time, Indian promoters will learn not to kill the goose that lays the proverbial golden egg, one a day. In the interest of future weddings and their wellbeing, American suitors should take a cue from their ageing, but ageless superstar, George Clooney.
Clooney, playing Mike Morris, a Democratic Presidential hopeful in The Ides of March, tells a campaign meeting: “In our marriage, we keep rules simple. Whenever we disagree, she wins.”