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December 10, 2005

What ails buyouts in India?

Why is it that despite several months of trying, large buyout funds have not been able to close any significant deals in India? The answer seems to be the lack of a strong “theme’ favoring deals in this segment, plus the inability to include leverage (debt) as part of buyout deals.

Industry experts believe that privatization-of both Central and regional government companies-in China will be a predominant theme that is set to accelerate buyout activity in that country. In India however, beyond the now-on-now-off privatization attempts as well some shedding of non-core businesses by old business houses, there is no dominant theme that favors buyout activity. "Partnering Indian companies wanting to acquire overseas is the only theme we see in India. Everything else is just opportunistic," said Anurag Mathur, Principal of CCMP Capital Asia (formerly JP Morgan Partners Asia), at a panel discussion on buyouts at the recent Asian Venture Capital Journal (AVCJ) forum in Mumbai. CCMP is looking at "control buyout deals with an equity ticket size of at least $100 million".

As part of the same panel, Puneet Bhatia, Managing Director of Newbridge Capital, pointed out how Australia has a booming market in buyouts, primarily due to the fact that the regulations in that country allow leverage. India also poses a problem it that it has a very limited universe of target companies that global buyout firms seek – typically, companies with over $200 million in revenues.

Manish Kejriwal, Managing Director of Temasek’s Indian operations, said he was focsing on building strong relationships with family owned businesses in India through its PE investment activities. He believes such relationships will help create buyout opportunities for Temasek from these groups in the long term.

Overall, the panelists agreed that given the strong growth in the Indian economy, we are set to witness several “growth buyouts” here. They expect to witness deals next year in the pharmaceuticals, automobile and auto components, banking and textiles industries. The action is also likely spill over into the cement and telecom industries.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.