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July 11, 2008

Buyouts: Increasingly in fashion

Business Today has an article on how PE firms in India are becoming warmer towards doing buyout deals.
There are those that are happy to take a minority stake in a private company, some even invest in publicly-listed companies, while some others buy out companies, never mind if they are listed or unlisted. But typically, most promoters rarely part with a majority stake in their companies. Therefore, venture investors have no choice but to settle for minority ownership. Yet, there are three PE firms in the country— Actis, Baring, and India Value Fund (IVF)—that like to invest for control.

...With competition growing, the economy slowing down and the quantum of PE money committed to India—the three firms alone have raised some $1.35 billion—the going will get harder. “This is a business only for specialised players,” feels Varun Sood, Managing Partner of Capvent India Advisors, a fund of funds, “and only those firms that have kept the discipline while investing will provide meaningful returns when the market is witnessing a slowdown of sorts.” Adds Anand Sunderji, Managing Partner, Thomas Weisel Partners: “The concept of PEs taking ownership/majority stake is still not so proven in India as most of the businesses are family-owned, and I do not think their mindset has changed too much when it comes to letting go of control.”

To be sure, none of this is news to Actis, Baring or IVF. The very fact that they have struck out a different investment path wherever possible reveals that they are keenly aware of the ground realities. And the fact that their own investors are happily piling on more money into their firms (Baring’s Fund III of $550 million was oversubscribed more than three times) means that their portfolio companies aren’t the only ones excited about working with them.
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.