Companies backed by private equity (PE) and venture capital (VC) funds are growing faster than others.
According to market research data, PE-backed companies have showed 31.5 per cent growth in profit after tax, significantly higher than the non-PE backed ones (22 per cent), as well as companies in the Nifty (23 per cent), the Sensex (21 per cent) and the CNX Midcap (22 per cent). They have also reported better growth in sales, wages, exports and research & development investment.
According to a report, titled ‘Private Equity Impact’, by Venture Intelligence, a Chennai-based research firm focused on private equity and merger & acquisition activity in India, sales at publicly-listed PE-backed companies reported a compounded annual growth rate of 25 per cent over 2000-2010, compared to 15.1 per cent for listed firms not backed by PE funds, 17.9 per cent for Nifty companies, 19.2 per cent for Sensex companies and 15.3 per cent for CNX Midcap companies.
For instance, Microqual Techno, an equipment and services provider in the telecom sector, was able to raise sales six-fold, from Rs 25 crore to Rs 150 crore, within three years of getting its first round of PE/VC funding, according to a case study in the report.
“Given the technology-centric nature of our business and the kind of growth rates we were targeting, we were looking for smart money. We chose the PE/VC route because it brings with it knowledgeable people who understand our differentiation, what we were trying to build and the kind of market potential we were going after,” Mahesh Choudhary, CEO of Microqual is quoted as saying in the report.
The company raised almost $20 million (mn) in two rounds of growth-stage VC funding. The first round of about $10 mn was raised in July 2007 from three investors, IndoUS Ventures, BTS Private Equity and Jafco Asia. This was followed by a $9-mn round led by Headland Capital (formerly HSBC Private Equity Asia), with participation by existing investors, in December 2010. Sales, $25 mn in 2009, touched $150 mn in calendar 2010.
Other parameters The wage bill of publicly-listed PE-backed companies grew 26.4 per cent a year over the 10-year period, more than that of non-PE backed listed firms (13.9 per cent) and also companies in the major indices – Nifty (18 per cent), Sensex (19.4 per cent) and CNX Midcap (13.8 per cent).
Growth in R&D investments at PE-backed companies stood at 30.6 per cent, higher than the 20 per cent at non-PE backed counterparts, and also higher when compared to companies in the major indices – Nifty (25.8 per cent), Sensex (26.1 per cent) and CNX Midcap (27.2 per cent).
“The common thread that emerges from the study is that PE/VC investment, when chosen and leveraged well, can help Indian companies scale up rapidly and accelerate growth in several ways that add significant value to the Indian economy,” said Arun Natarajan, CEO of Venture Intelligence.
