Private equity (PE) investment in India is taking a new route. People tracking the sector say that large and mid-sized PE funds are increasingly making inquiries with successful family-owned firms in smaller towns as valuations of large enterprises are surging and there are more players chasing the same companies.
According to investment bankers and chartered accountants, groups such as Blackstone, ICICI Venture and Citigroup’s private equity arm have been talking to closely-held family-run companies in towns such as Trichy, Coimbatore and Visakhapatnam to partner with promoters in growing their businesses which have reported annual growth averages of 30% to 40%.
Most of these firms have revenues ranging from Rs 100 crore to Rs 400 crore and are in various businesses like textiles, pharmacies, engineering, auto components and power equipment.
“With the influx of large private equity funds into India and with everyone chasing the same companies, it is getting difficult for them to gain entry into such firms; also, valuations of such companies are rising, eating into their returns,” said one banker. “It makes more economic sense for these funds to invest in companies which are growing now and will give them higher returns five years hence,” he added.
Companies such as the Trichy-based Cethar Vessels, KPR Mills of Tirupur and Vasan Medicals with one of the largest eye care hospital networks, are all typically old family-run businesses which have been making profits for 30 to 50 years.
According to chartered accountants closely associated with such companies, there is increased acceptance among the second generation promoters — sons of the original founders — to talk to private equity funds. “This would not have been possible, say 15 to 20 years back, when the original promoter was still active, since family-run businesses were wary of allowing strangers as shareholders,” an official with asouth-based chartered accountant firm which has audited such companies for over 50 years told ET.
Source : Economic Times