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October 07, 2006

India cos. targeting PE-backed firms for overseas acquisitions

Business Today has an article exploring the trend of Indian companies buying out PE-backed firms to quickly ramp up their overseas presence.
Says Aditya Sanghi, Country Head-Investment Banking, yes Bank: "The trend is emerging to acquire companies owned by private equity players, as it's easier to do a deal because they don't have any emotional attachment to the business. As long as you manage to give them a decent return, they are willing to exit."

There are other reasons too for taking the PE route. As Sanghi puts it: "Unlike inbound acquisition, there are many unknowns in a cross-border deal, such as regulatory approvals. As an entrepreneur you would not want to take on these challenges. Therefore, to avoid such hassle corporates are acquiring through the PE route." That's because the onus of putting the processes in place lies with the PE investor. "Apart from cleaning the balance sheet, operationally they are benchmarked to the best practices, which is a comfort factor for an acquirer."

The largest proportion of outbound acquisitions via private equity has been in Europe, which accounted for over 67 per cent of the total deal value of $3.96 billion (between January and June). "Many family businesses that have been acquired by PE investors are in Europe; therefore we are witnessing higher cross-border deals in Europe. Once their (the PE investors') investment horizon and targets are achieved they move on by selling their investments," explains Rohit Kapur, Executive Director-Advisory & Head-Corporate Finance, KPMG.

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