After scouting for deals over two years now, buyout funds are finally making a headway in the Indian market. Blackstone’s acquisition of Gokaldas Exports comes a few months after it bought Intelnet and PE watchers. With a PE fund likely to take over Patni Computers, experts believe that buyouts are set to gather momentum in the country.
“Over the next 2-3 years, buyouts will be the next big thing in private equity in India. We expect the opportunities to increase,” said Chrys Capital Senior MD, Ashish Dhawan recently. Chryscapital, which has just concluded fund-raising for its $1.25 billion fund, will actively look for buyout opportunities.
Buyout specialists such as Blackstone, Carlyle, KKR and Apax Partners, which are known for buying companies rather than picking minority stakes, have been on the prowl for some time in the country. But so far, PE players have only participated in a handful of buyouts.
US-based PE KKR set the trend when it bought a 85% stake in Delhi-based Flextronics Software Services for over $900 million. The other buyouts in India included WL Ross’s acquisition of textile company OCM India for $37 million, Navis Capital’s buyout of restaurant chain Nirula’s and packaging company Oriental Containers and Actis, snapping south India-based food group Nilgiri’s for $65 million.
Buy-outs funds, which typically take management control of a company, have been extremely successful in developed markets on the whole. However, most PE investments in the country have been done by picking minority stakes in public companies with a short investment horizon often ranging between one and four years.
“India is a growth market and promoters of most private companies are either aiming at high valuations or looking to sell only minority stakes to private equity funds. PE firms in India are thus acting more like mutual funds, due to the constraints of the market,” said Bain Partners partner Sri Rajan.
But with the size of PE funds getting bigger and promoters becoming more responsive to the idea of cashing out, the PE industry expects buyouts to increase. “So far, PE funds have invested in growth capital. But the mix will change with buyouts gaining momentum,” says a veteran banker.
For the buyout market to develop fully in the country, some regulatory changes will be required. Hostile takeovers will have to be allowed and delisting norms liberalised.
Source: Economic Times