If milestones are not met, entrepreneurs will have to sometimes pay a big price. The investors can unseat you as a CEO, or sometimes take away a big chunk of the stake that is yet to vest as they are milestone-linked. Here is one high profile instance that depicts this well. Telecom infrastructure management firm Acme Telepower is seeing PE funds pressing the exit button as the Gurgaon based company has failed to come up with an IPO in time according to the agreement.
Early this year Monsoon India Inflection and Jackson Heights Investments had picked up a 3.35% stake in Acme for Rs 400 crore pegging the valuation of the telecom infra firm at around Rs 11,940 crore (close to $3 billion at the prevailing exchange rate then). Prior to that, Acme had offloaded a 1.66% stake to three PE firms - DB International, Earthstone Holdings and Kotak Mahindra Capital - for Rs 197 crore. All of these investments were made as a part of a pre IPO transaction.
According to a report in The Economic Times, barring one PE player, all other funds have informed the company of their plans to exit as Acme is not going for an IPO within the specified deadline (November 30).
Such a move would come as a double whammy for the promoters as they would not just have to buyback the equity held by the funds, but also suffer loss on account of 10-15% adverse swing in the exchange rates. The private placements were made when the US dollar was hovering at Rs 40-41 and it is now fluctuating around Rs 47.
Acme, which manufactures and supplies energy conservation solutions for telcos, has deferred its proposed IPO. According to the plan, Acme promoters were to reduce their stake to 84.6% post IPO from the existing 94.7%.
Acme is primarily focused on two areas—manufacture and sale of telecom passive infrastructure hardware, and provision of installation and annual maintenance services. The firm was riding high on the success of the telecom boom in India. It is also foraying into new sectors such as waste water management, recycling solutions and cold chain solutions.
Probably Acme Telepower promoters - led by Manoj Upadhyay - knows the value of the company and will be happy to keep the stake back. Acme was the most sought after company last year as scores of PE funds queued up to invest in them.