’PE In India Is About Contributing To Growth Over Financial Wizardry’

By Boby Kurian

  • 22 May 2012

This year, over a dozen private equity industry honchos quit their jobs to hit the road for raising a new fund. Limited Partners (LPs) who invest into private equity intend to raise their exposure to funds focused on Asia-Pacific, especially India and China, even as they call for reduction in the number of fund managers in the Western world. The post-slowdown PE world is poised for structural changes which could engulf emerging markets like India going forward.

Set up in 2008, Forum Synergies (India) PE Fund Managers P.Ltd, is readying its initial investments in India's small and medium enterprise (SME) segment. This Bangalore-headquartered fund manager is helmed by a group of entrepreneur CEOs who have steered operations of multiple multi-national corporations, turned around companies and effected mergers & acquisitions. They spearheaded growth for some of the marquee firms in a rapidly expanding yet challenging market.


"In India, fund management is not about financial engineering and expanding exit multiples. It is about how one can help investee companies participate in explosive growth," says Samir Inamdar, Co-Founder, Managing Director & CEO of Forum Synergies (in pic - left). He was formerly chief executive at Tyco Electronics and GE Consumer & Industrial in India. "Business leadership and operational expertise (across sectors) will be critical for fund managers in a growth market," adds Hemchandra Javeri, Co-Founder and Executive Director (in pic - right). He spearheaded Nike India, Madura Garments, a part of Aditya Birla Group, and Home Solutions Retail India Ltd in the past.


Forum Synergies combines business leadership with the financial wizardry associated with the PE industry normally. It will be managing funds in which some of Europe's iconic investors like Ram Bhavnani and several of India's top businessmen are investors. Edited excerpts of an interview with Inamdar and Javeri:-

What will be the size of funds that you will be managing and advising in India? And how will it be structured since it involves multiple funds with different sets of global and local investors?


Inamdar: Forum Synergies (India) PE Fund Managers Ltd will be advising up to $200 million in funds at the time of final close. Our first close of around $50 million is happening within July. We are essentially managing and advising two funds -  India Knowledge-Manufacturing Fund-I and Axon - Forum Synergies India Opportunities Fund. The first one will have general international investors through a pooling entity in Mauritius and separately Indian investors through a domestic trust. We are managing and advising this fund. The second one is a co-branded fund with Madrid-based Axon Capital (which is registered with CNMV, the SEBI equivalent in Spain). This will provide a platform for Spanish and European family offices to investment into the India story. We are advisors to this fund managed by Axon that is bringing in capital through a Cyprus entity.

Javeri: The fund management company has eight shareholders including both of us and several entrepreneur CEOs like KR Ravishankar of Strides Arcolab and Sequent Pharma; Sushil Mantri of Mantri Developers Pvt Ltd; Manohar Gopal of Featherlite; Ishwar Subramanian, ex-CEO & Managing Director of Akzo Nobel, Sudhir Kant, CEO & MD of Millipore India and Milind Shah, MD at Medtronics.  Prashant Goyal, who is our COO, was formerly with Indus Venture Management. Mantri, Ravishankar and Gopal are also investors in one of the funds managed by us, and so are several other entrepreneurs like CK Ranganathan of CavinKare. 

Our first close will mostly be through HNIs and family offices who are now increasingly taking interest in PE as an asset class. Financial institutions will come in subsequently.


Forum Synergies will be chasing India's vast SME opportunities. What will be your investment strategy?

Javeri: India's unlisted SME space is compelling. There are several undiscovered jewels there. The total number of SMEs stood at 26 million in FY07 and our estimates suggest that there are three million of them in our catchment pool. This provides investors, especially our European investors, an opportunity to be part of the real growth opportunity in India (without being prone to the risks of start-up enterprises).

Inamdar: We are looking at investing $3-15 million into firms that have revenues of $5 to $75 million. These are typically family owned/second generational entrepreneur businesses with a proven business model and are EBITDA positive. They will be participating in the ongoing growth with our capital, business leadership and operational expertise. Our priority investment opportunities are in ICT, engineering, cleantech and healthcare. We will deploy our fund almost evenly between these three areas.


Javeri: We are not for everyone and everyone is not for us. We look out for promoters who are keen on absorbing the huge growth potential through our business leadership and operational expertise, and not just for cash. We enter the company just before its take-off phase and look for an exit when it’s on the anvil of tapping mature mainstream markets. We normally take 26% to 49% stake and look staying invested for maximum of 5 years, within which we help them to tackle growth and prime them as acquisition targets. 

The fund managers at Forum Synergies are the differentiating factor as you would argue. They come with track record of operational expertise and business leadership in an array of sectors. Can you explain how that will work in investing, and why it is compelling?

Inamdar: As our Spanish investors say, one must be a dodo to miss out on growth in India. The question is how you can bring about 'explosive' growth. This will be the biggest challenge facing private equity fund managers. Value creation here is not just about financial engineering and expanding exit multiples (like in the case of PE investing in western economies with slow growth and saturated markets).

This is where the role of fund managers (like us) become unique. We have people who have been in active management, who have been CEOs, who have held board positions, who have done M&As, who are well networked locally and with international affiliations. There are financial whizkids in PE industry, and, of course, we have them too. So, it’s a great blend.

But tell us how this will work in favour of your investors and investee firms?

Javeri: PE investing broadly has four phases - sourcing of deals, structuring them, growing business and realising value. Our backgrounds bring in differentiated value in each of these phases. First, in sourcing. We have seen about 110 investment opportunities till date. More than half of them are not marketed in the market. These are unique deals that are not chased by multiple funds. We source them through our industry experience and networking. In doing so, we get them at realistic valuations and enter into transactions that are relationship driven as well.

While structuring deals, we dive deep into the business models and the industry performance models to come up with capital efficient investment models. There are already live instances where we have helped potential investee companies save on capital requirements de-bottlenecking projects.

But our biggest value creating role happens in growing business. Normally PEs bring to table customer contacts or networks. But the investor also needs to prepare the company to take advantage of these contacts. We intend to work with them on what we call the 'seven dimensions of value-added investing'. This includes re-aligning or improving the firm's focus, product, technology, business process, team building, go-to-market strategy and customer relevance.

Again, along with our partners Axon Capital, we start match making for investee companies 3-5 years down the road right up at the time of investing itself. We leverage on our networks and global affiliations to identify possible acquirers and work on developing the company as an interesting proposition to some of them.

Your exit strategy seems to be skewed towards strategic sale. Why? Will the investee company promoter be in sync with you on this?

Inamdar: A strategic sale is the preferred route, but we are not discounting the other options like IPO or secondary sale to another fund. Most of our investee firms will be in the B2B space. They are more about market shares and less about brand and ballooning numbers (that are attractive for IPOs). While saying this, I am not ruling out investments in B2C models though.

Even though most Fortune 500 firms are in India already, there are several mid-tier and smaller global firms that are looking to acquire Indian assets in their respective businesses. Since the 90s, India has become extremely competitive as a production hub. Our partner Axon will advise us on potential opportunities emanating from Europe on this front.

On promoter willingness to sell, we would like to add that Indian promoters are now savvy on value creation. They want to be part of a large pie rather than controlling a smaller one. Our entry will be their first experience with outside investor participation, which will make them realise value added business leadership and operational expertise. Bringing in strategic buyer will then unlock bigger potential in terms of technology and global markets.

As we said earlier, our investments are also linked to relationships with the promoter. We will steer and hand-hold them towards this at every junction. Obviously, we will not be doing anything that will destroy the passion of an entrepreneur promoter.

The funds you are advising is not that big (up to $200 million). India, as you say, is a huge growth market with frequent capital requirements to keep up with the potential. Will you be constrained when it comes to follow-on investments?

Inamdar: We will invest in about 12-14 firms. Yes, growth requires follow-on investments. A part of the fund will be set aside for this. We will soon determine this as we are going to work closely with the firms on the operational side.

There is an interesting option before us. Some of the HNIs and family offices who have invested in our funds would like to co-invest with us in subsequent rounds of funding. This will be an attractive opportunity for them, as these investee companies have been studied and analyzed by their fund managers already. (A recent Coller Capital survey on global LPs said many of them were looking at direct investments along with the funds).

Of course, we are also ready to look at partnering with other funds for follow-on investments.


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