Private equity (PE) money continues to pour into India. January alone saw 33 PE deals worth $1.16 billion against $7.5 billion in 2006. Global PE giants clearly outnumber India incorporated PE players, most of which are subsidiaries of large Indian companies.
IIML, the PE arm of IL&FS, ICICI Ventures, the PE arm of parent company ICICI, UTI Ventures, the private equity fund of UTI Bank, and First Capital — the PE fund promoted by Gaurav Dalmia are some of the ‘home grown’ PE funds.
Experts feel with most home-grown PE players receiving substantial institutional backing, the difference between foreign and local players gets blurred. “With the backing of institutions like IL&FS, ICICI, UTI and IDFC, challenges are not significant. These will be significant for stand-alone domestic PE players,” said Venture Intelligence CEO Arun Natarajan. Most, however, agree that fundraising is the biggest challenge for PE funds incorporated in India, even those with a good exit track record. Till now, IL&FS has exited 38 investments at an IRR of 30%. Last year, ICICI Ventures exited Naukri.com, Air Deccan, Ace Construction and XL Telecom via the IPO route and made handsome returns.
“It is challenging to convince investors while raising funds for an India-centric fund. It takes anywhere between 9 to 18 months to raise a $1 billion fund, the same time it would take for a global fund to raise about $5-6 billion. The fundraising takes longer as there are cycles of investments,” said IIML MD Shahzaad Dalal. The modus operandi of these Indian funds is the ticket size of their investments, which typically is lower than their global counterparts. While investments for local PE funds vary from $25 million to $100 million, the foreign funds consider deals in the range of $80-200 million.
In fact, to get a share of the growing sub-$75 million investment range, New Bridge, the Indian investment arm of Texas Pacific Group, recently created TPG Ventures in India for investments with ticket size of $70 million or less. Even the scale of buyouts differ by a wide margin. While buyout specialists like Blackstone and Carlyle do deals in the range of $250-300 million, domestic PE players like the Gaurav Dalmia co-sponsored India Value Fund have done buyouts for $30-40 million.
“The knowledge of local conditions helps us to do buy-outs even at small sizes. Unlike global funds, which are cyclical in nature, local funds are long-term in nature and companies want to partner with us,” said Landmark Holdings chairman Gaurav Dalmia.
Source :ET