Management buyouts gaining momentum

PRIVATE EQUITY WATCH

Private equity players in India, triggered by consolidation of domestic businesses, cross-border M&As (merger and acquisitions) and split in family-owned companies, are going for big buyouts, mostly, management buyouts.

The first six months of the year alone saw 29 PE deals worth $2,435.3 million taking place in the country, compared with 68 deals worth $2328.3 last year (full year), according to Thomson Financial.

Globally, India ranks 16 among the countries with most PE deals signed in 2007. It tops the chart among the BRIC (Brazil, Russia, India and China) countries, followed by Brazil, which had PE buyout deals worth $1,543.6 million. In comparison, China struck deals worth $678.7 million and Russia saw deals worth $68.1 million.

"With more and more family-owned businesses are becoming smaller or are splitting, and entering into other businesses, domestic firms are entering into M&A deals and consolidations taking place, we will see a lot more PE deals in India.Most of our buyouts have been not for leverage but for growth," said Aluri S Rao, director, ICICI Ventures.

Some of the buyouts by ICICI ventures are Tebma Shipyard, Ace Refractories and Ranbaxy Fine Chemicals, which were later converted into management buyout (MBO).

"PEs bring a lot more focus into a company. They also bring corporate governance into companies, which are family-run businesses, by converting them into management-run businesses. Besides, they also incentivise the management with equity," he explained.

"This year we expect private equity investments in India to be in excess of $10 billion," said Atul Mehta, partner of Ernst &Youngs PE practice.

Some of the top management buyouts in India in the past include the UK-based CDC Capital Partners buying into ICI India and Oak Hill Capital Partners buying out exlService.com (I).

"India is moving towards global trends and some of the largest PE deals globally have been MBOs. MBOs will continue in the days to come and it will be seen across sectors. However, we will see more such deals in the captive BPO segment, as lot of the large companies are exiting from their non-core businesses. The ticket size of MBOs will continue to increase," he added.

Last month, US-based private equity firm Blackstone bought 80 per cent in Intelenet, a business process outsourcing firm from Barclays and HDFC for close to $109 million.

"Through our conversations with Barclays and HDFC, we thought that one of the best options for us would be as a management to tie up with a PE firm. From the perspective of employee retention also, it made a lot of sense," said Susir Kumar, CEO, Intelenet.