While Indian promoters largely remain averse to buyout offers, the recent years have witnessed an uptick in control and buyout deals by private equity investors, thanks to an increasing pressure on companies to repay debt, a growing confidence among foreign institutional investors (FIIs) to take operational control of firms and an inclination towards monetisation opportunities, said panellists at News Corp VCCircle India Limited Partners Summit.
"Financing has changed dramatically over the last five years. Previously there were only two or three banks that could lead fairly large buyout deals; today that number is much larger," said Mathew Cyriac, chairman, Florintree Advisors, a Mumbai-based alternative asset management firm. "There is a lot more interest and appetite now. Several PE firms in India have identified buyouts as their core focus. That is also potentially going to drive buyout volumes going forward," said Cyriac, who recently stepped down as co-head of private equity business at Blackstone in India.
“With RBI getting tougher on banks and banks getting tougher on promoters, families are looking at selling non-core and core businesses to repay debts," said Anuj Ranjan, managing partner, Middle East and South Asia at Brookfield Asset Management. "In 2005-06, it was thought that FIIs couldn’t run an Indian company in a way that was profitable or sensible. Now we are seeing more confidence among FIIs in buying and running Indian businesses," he said.
According to Parth Gandhi, managing director of AION India Investment Advisors Pvt. Ltd, a section of promoters also opts for monetisation. "There are promoters who essentially have succession issues and are willing to say, 'I am planning to go off into the sunset but I want this company that I built to be run by a set of individuals or firm that will grow it'," he said. "Most of our buyouts have been in services (financial services, IT, BPO and some in manufacturing), mostly because promoters (have been) happy to sell," Gandhi said.
However, this change in mindset – willingness to shed control to private equity investors or sell businesses – is taking place rather slowly. "There has been some growth in last few years, but buyouts are still a very small percentage—say 15-20%—of PE investments in India,” Cyriac said.
"If you consider buyouts worth $30 million dollars or more, only 94 buyouts have happened since 2005," said Gandhi. The total size of buyout deals in private companies is estimated to be a little below $16 billion and they account for around 20% of total number of deals.
According to Ranjan, it is usually financial stress or family conflicts that lead to sale of a company rather than the desire to take the business to the next level.
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