Private equity has come a long way since the days of Technology Development and Information Company of India (TDICI), the first Indian company with a mandate to do venture capital, that was floated jointly by ICICI and UTI in the late 1980s.
The quarter to September 2007 saw $3.52 billion worth of private equity deals in India – something TDICI's first president and chief executive officer Kiran Nadkarni could not have imagined in those in his wildest dreams.
Nadkarni moved on and TDICI became ICICI Venture in the mid-1990s. But that's another story.
Cutting to the chase, private equity is gaining juggernaut proportions in India.
Private equity is a broad term which means shares of a company that are not listed on an exchange.
So traditionally, those who buy such shares are called private equity investors, and, according to a recent study by Evalueserve, there are 366 of such entities operating in India.
These days, private equity investors also take large stakes in listed companies. Such transactions are called PIPEs, short for private investment in public enterprises.
Venture capital is closely related to private equity, but venture capital funding typically goes into companies that are in the early stages of their existence.
A record $2.69 billion had poured in, in the second quarter of this calendar year (April-June), which was the period when the maximum private equity inflows (in terms of deal value) took place.
The $3.52 billion invested is the highest ever in a quarter, according to data compiled by Venture Intelligence, a firm that tracks the sector.
To put in perspective, this is 176 times the value of deals done a decade ago – $20 million across five deals in 1996, according to Evalueserve, a research outfit.
The largest investment reported during the third quarter of this year was the $717 million that Dubai International Capital, the international investment arm of Dubai Holdings, paid for a 2.87 per cent stake in ICICI Bank.
That makes it the largest PE deal consummated so far, if one were to exclude Temasek's recent investment in Bharti Airtel for a 4.99 per cent stake, which is touted to be valued at around $2 billion. (This deal has not been included in Venture Intelligence's calculations).
The Venture Intelligence report said in this report, both private equity and venture capital deals have been captured, and it's the sum of the two that have contributed to the $3.52 billion in record inflows.
But this is not the only record to have been shattered.
Venture Intelligence says that the $8.95 billion that has come in this calendar year so far, has also eclipsed the $7.5 billion that was pumped in by private equity players in the whole of 2007.
And if experts are to be believed, then there's an even stronger gush waiting around the corner.
Said Arun Natarajan, founder and chief executive officer of Venture Intelligence: “Typically, the last quarter tends to see the maximum deal flows.”
The research outfit Evalueserve, which had came out with a report early this month, has already estimated the value of such deals in India at $13.5 billion this calendar.
Said Dilip Kothari, founding managing director of JM Financial Investment Managers, which has a $225 million fund that is about 40 per cent invested: “We're going to see a lot of deals in the healthcare, banking, outsourcing and microfinance segments in the coming days.”
One reason for the higher number of deal flows these days is that second-generation promoters of companies are more willing to part with stake.
“They have been abroad, seen the PE/VC market work in the West, and have understood the kind of value that PE/VCs add to the company,” said Kothari.
Source: Sify