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March 30, 2008

Profile of Blackstone's Indian Ops

Businessworld has a cover story on Blackstone's Indian operations.
For the Blackstone India team, closing a transaction is just the beginning. The pressure to show high returns starts building up soon after. The principals meet on Thursdays to discuss how to add value in portfolio companies. Like all private equity firms, Blackstone India is keen to cut costs, improve processes and connect its investee companies with new customers and markets so that it can significantly enhance profits to ensure successful exits. So, for a couple of days every week, Gupta’s handpicked team criss-crosses the country visiting manufacturing sites and key offices of investee companies to assist in changing the way these companies do business. By the end of the week, the team re-congregates at headquarters.

“Every company’s needs are different,” says Gupta. “And we offer value that is tailor-made, whether it’s a buyout or a minority stake.” Gupta constantly talks about the value-add that Blackstone brings to the table. And he believes this will hold him in good stead even as the economy shows signs of slowing down and the markets plummet. “I’m not worried about the public markets as we operate in the real economy,” he says. “And we have a pipeline that is better than last year.” Exits are about five years away, so the high valuations of the seven deals he struck last year, adding up to an impressive $1 billion — including the Ushodaya deal that has not been closed — don’t perturb him. More importantly, he’s certain that Blackstone can structure future deals to mute the impact of the change in valuations brought about by the falling Sensex. His optimism may have something to do with the fact that as Indian promoters get used to less hefty valuations for their companies in public markets, they are likely to favour private equity.

...The prolific deal maker’s risk taking ability will be tested in its acquisition of a majority stake in the ailing, 100-year-old garment exporter Gokaldas Exports and BPO firm Intelenet, two classic buyouts that it has done so far. Jayesh Desai, Ernst & Young’s director for transaction advisory services, agrees. “Unlike other bulge bracket firms in India, Blackstone has demonstrated its ability to take entrepreneurial risk in the buy-outs of Intelenet and Gokaldas,” he says. While this may work in Blackstone’s favour, it could also prove to be double-edged. The pressure to drive these two businesses is building as there have been murmurs that the firm paid a hefty price for them. In the days ahead, the firm’s performance in the country will be benchmarked against what returns it makes from these deals.

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.