One of the things we constantly face with entrepreneurs is that they don’t want to sell their businesses but an IPO (initial public offering) can cause them to be locked in longer than they may want. So now we can give a third option for exits. We can give them stock in our diversified investment company. As long as we are comfortable that there is a succession plan in place, we can swap stock in his company for stock in our company.
...Our 1994-1995 vintage fund saw rough times with the Asian crisis and when the fund life came to an end, our investors wanted to sell. But we were just beginning to see the turn up that we had seen in other Asian markets, and knew it would take 18 to 24 months to see higher valuations. Yet, investors were concerned about another crisis. So even though we didn’t really want to sell, we were required to sell, because the fund’s life came to an end. To an investor this may not be a big deal, but this was a $220 million fund and had we waited another 12 to 15 months, we would have made another $150 million – with 20% of carry that’s $30 million. That is a lot of money to leave on the table.
...At that time, during 1994 -1995, valuations in most of Southeast Asia in were very high. India was comparatively attractive. Many of our investments were made in the low single digit price earnings ratios or low teen. So we made a spate of investments in India between 1995 and 1998. Apollo Hospitals to Blue Dart. And a couple of pharmaceutical businesses: Orchid and Strides. We have directly invested in India and also through portfolio companies. For example, Singapore’s Parkway Holdings has investment in India and so does Aman Resorts, which was our portfolio company until we sold our stake to DLF in the last few weeks.
Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.