World’s Top PE Firms Come Out Of Shell In India, Invest $3.4B In 2011

By Madhav A Chanchani

  • 13 Oct 2011

Virtually, each of the top global private equity firms who have set shop in India has announced fresh investments in the country in 2011, for the first time ever in a single calendar year -- possibly reflecting a valuation equilibrium between what companies want and what investors are willing to accept. According to some, this is partly attributed to a desperation of investors to strike a deal in the country, the world's second fastest growing major economy.

Out of the world’s top 25 private equity firms (by total assets under management), 13 have India offices and all but one have managed to strike a deal in the current calendar year. In fact, firms like Blackstone, KKR, Carlyle, TPG, General Atlantic, Apollo, Goldman Sachs, Bain Capital and Providence have together announced deals worth nearly $3.4 billion across 22 transactions in the first nine months of CY2011, according to data compiled by VCCircle. Among the large PE firms only Advent International is yet to announce a deal this year. However, it was said to be in the fray for the Patni Computers deal (which eventually went to iGate-Apax combine) and is also rumoured to be in talks to buy out British Telecom from Tech Mahindra.

Experts believe that this is happening due to a variety of reasons one being the poor scenario for primary market issues which was otherwise an option for companies to raise money. “In the past few months, large-size transactions, although highly competitive, have been available because the IPO (initial public offering) market is shut,” said Vikram Utamsingh, executive director and national head of markets at KPMG India Pvt Ltd.


According to him, the market would continue to see such action during the next six months.

Moreover, as India Inc. steps up its global ambitions, many promoters are keen to leverage the value-addition and the network (in terms of offices and portfolio companies) that these PE firms bring.

“A lot of Indian companies now want investors who can provide support in terms of strategy, in addition to capital. One theme that is playing out in India is – companies are looking to go global. And global investment firms, because of their footprint and network, are able to showcase this better,” said Mayank Rastogi, Partner (private Equity) at Ernst & Young.


According to Rastogi, these PE players can also draw parallels, like investment experience in kidswear companies in other developed and emerging markets, which would give them an edge in closing transactions.

Biggies Lead PE Activity In 2011

The total private equity deal value in the first three quarters of 2011 is pegged at $8.4 billion spread over 356 transactions, having already exceeded the total for the whole of 2010 calendar year, according to VCCedge, the financial research platform of VCCircle.


Interestingly, investments by the top global private equity firms accounted for over a third of the total value in this period which shoots up further if Apax Partners’ $480 million investment in iGate Corp (an overseas listed firm) is taken into account.

Two of the largest private equity investments – Apax-iGate and Bain Capital who, along with GIC Special Investments, struck a $850 million deal with Hero Investment Pvt Ltd – came as trophy assets to market. While Bain Capital’s investment helped the Hero Group promoters buy Honda’s stake in their JV (now called Hero MotoCorp), NASDAQ-listed iGate Corp tied up with Apax Partners to buy Patni Computers for $1.2 billion.

The most striking aspect of deal activity was firms like Apax Partners, Providence Equity Partners and Carlyle (buyout team) concluded fresh deals in 2011 after a 3-4 year hiatus.


This is partly due to a more customised investment strategy at works for India in certain quarters. Bis Subramanian, managing director of Providence Equity Advisors India Pvt Ltd, has recently told VCCircle that the PE firm is not averse now to strike deals of smaller ticket sizes.

Indeed, the firm that has the distinction of sealing some of the single largest PE deals in India, with investments cumulating to around $850 million in Idea Cellular and Aditya Birla Telecom. Earlier this year, it invested around $57 million in UFO Moviez.

Ditto Carlyle, whose buyout group struck a deal in India after a gap of four years and invested in India Infoline. So much so, that the PE major didn’t even wait for the financial services company to seek capital and picked the shares from the open market.


Carlyle India’s Devinjit Singh had earlier said in an interview that the firm was looking to strike more transactions in the country across investment classifications.

Open Market Deals Gaining Traction?

While PE investments in public equity or PIPE deals have been one of the mainstays of the Indian PE industry, buying shares in companies from open markets (not fresh issues) started gaining traction among mid-market players since the market crash in 2008.

Interestingly, several VC firms like Sequoia Capital India and Norwest Venture Partners used this route but most global PE majors initially stayed away from such a move.

But this year, PE firms like General Atlantic, Carlyle Group and Blackstone have picked up shares in companies from open markets. General Atlantic acquired 3.7 per cent stake in IndusInd Bank Ltd, a private sector lender owned by the Hinduja Group, for around $90 million.

Carlyle’s buyout team, which had earlier invested in Housing Development Finance Corporation (HDFC) Ltd four years ago, also acquired 9 per cent stake in brokerage and financial services firm India Infoline.

Then again, Blackstone picked up 7.12 per cent stake in Monnet Ispat Ltd, one of India’s largest manufacturers of integrated coal-based sponge iron. Last year, the PE giant had also invested Rs 275 crore (around $60 million) in a subsidiary of Monnet Ispat that operates in the power generation space.

One investment advisor who did not want to be named said, “Such a strategy also reflects desperation on the part of some of these PE firms to get an exposure in a company which is not even looking to raise cash at current valuations.”

Infrastructure: Powering Through

Out of the 22 deals struck by these top PE firms, six involved the infrastructure sector and accounted for nearly a quarter of the deal value. Four of these deals, cumulating to $540 million, are in the power sector while others are in logistics and SEZ.

In fact, private equity firms have started getting comfortable about how returns can be achieved from the power sector. “These funds have explored the power space for the last two years, become comfortable with the regulatory environment and looked at several assets,” said KPMG’s Utamsingh, adding that these investments did not come from infrastructure-focused funds.

The real estate segment, especially mid-to-low-cost residential developers, also saw investments from PE players like Warburg Pincus, Carlyle and TPG Capital.

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