VCCircle has conducted a survey on the Deal Outlook 2009 by interviewing 33 top dealmakers in India. While the entire survey will be available for download soon, we are publishing select interviews daily. The first of the series is an interview with Sameer Sain, MD& CEO, Future Capital Holdings, the financial services arm of Future Group. Sain was formerly a managing director at Goldman Sachs International, where he spent over 11 years in New York and London .
FCH runs a $425 million sector-agnostic private equity fund Indivision India Partners, besides three other funds for real estate, retail and hospitality. It also has businesses such as financial advisory, retail financial services and wholesale credit. Excerpts:
Will you see a slowdown in private equity deal making in India in 2009?
Relative to the last few years, 2009 will be a slow year for PE transactions. First, the expected slowdown in corporate earnings means that growth projections need to be realigned, especially for privately owned businesses. Second, there still remains a substantial valuation gap between public and private markets and some adjustments between financial sponsors and promoters are expected.
How do you see private equity exits in 2009? What is your opinion on IPOs and M&A based exits, and how will they fare in this year?
While there is a chance of some PE exits, especially at the end of 2009 assuming some rejuvenation in the IPO market, there is a high probability that exits will be generated through sales to strategic investors. In most cases a private equity fund raises the managerial quality, corporate governance and business operations of a business and in many ways is a valuable endorsement for a strategic investor.
Will private equity investors prefer to invest in a listed company or in a privately held company?
Historically PE funds have done, and should continue to do, what the sector stands for ie: private situations, and not public.
In India for various reasons PE players engaged in and continue to engage in PIPEs (Private Investments in Public Equity) and have suffered significant
setbacks as a result. We predict a return to classic PE investing going forward.
How do you see the valuations this year? Do you see entrepreneurs adjusting their expectations in tandem with public markets?
Valuations in public markets seem attractive. However we expect earnings numbers to be impacted severely this year and growth numbers
to come down significantly.
While some of this has already been factored into public markets, private markets are yet to take these into account. Entrepreneurs need to adjust their expectations in line with this and view financial sponsors as partners.
What are the sectors that you will prefer to invest in 2009
We still believe that India’s domestic consumption story remains intact and one of the reasons why we may not be as affected as others.We like sectors that will benefit from domestic consumption at large and specifically consumer discretionary and non-discretionary linked businesses like healthcare, education, alternative energy and media.
The sectors that you will not look at investing in 2009?
We generally prefer not to invest in early stage businesses, businesses that have heavy manufacturing facilities and require high capex, or businesses dependent on exports and global demand.
Is there a change in the way you evaluate an investment proposal? Will it take longer for you to close a deal than compared to what you did it at a boom time like late 2006 or 2007?
There is no change in the way we evaluate investment proposals. We prefer to invest at our own pace and only after carrying out a thorough due diligence and will continue to do so.
Do you see more funds coming in to the market?
Do you foresee distressed asset sale?
Yes; distressed assets will be an interesting theme in the latter half of 2009. While many of these will have a real estate component, there will be opportunities also to look at attractive businesses that have lost their way and decent businesses put on the block by forced sellers.
Do you see more buyouts (controlled transactions) in 2009?
Yes we do. However we also see many of the buyout businesses to be in somewhat distressed positions and requiring significant restructuring.
Do you see an increase in PE-backed acquisitions?
Yes. More so on the domestic-to-domestic front rather than domestic-to-international front.