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February 05, 2011

“Private Equity-backed cos. outperform their peers”: Study

PE/VC-backed companies fare better in terms of growth in sales, profitability, wages, exports and R&D investments, a study by Venture Intelligence shows.

According to a new study by Venture Intelligence, a leading research firm focussed on Private Equity and M&A activity in India, PE- and VC-backed companies are growing significantly faster compared to their non Private Equity-backed peers as well as market indices like the Sensex, Nifty and CNX Midcap.

The Venture Intelligence Private Equity Impact report also shows that profitability, wages, exports and R&D investments at PE/VC-backed companies are growing at a significantly higher rate compared to their peers which are not PE-backed.

 Sales at publicly-listed PE-backed companies demonstrated a CAGR of 25% over the ten year period 2000-2010, a significantly higher rate compared to the 15.1% at non PE-backed listed firms, 17.9% at Nifty Index companies. 19.2% at Sensex companies and 15.3% at CNX Midcap companies.

 PE-backed companies showed 31.5% growth in Profit-After-Tax, significantly higher than non-PE backed companies (22%), Nifty (23%), Sensex (21%) and CNX Midcap (22%).

 Wage bill at publicly-listed PE-backed companies grew at 26.4% over the ten year period, a rate of increase greater than that of non PE-backed listed firms (13.9%) and also that at the major indices – Nifty (18%), Sensex (19.4%) and CNX Midcap (13.8%).

 While the growth rate of exports at PE-backed companies (at 27%) lags that of large cap companies, it is still higher than that at non PE-backed companies (23%) and Midcap companies (25%).

 Growth in R&D investments at PE-backed companies (at 30.6%) is significantly higher than that at their non PE-backed counterparts (20%) and also higher when compared to the major indices – Nifty (25.8%), Sensex (26.1%) and CNX Midcap (27.2%).

The report also features case studies of successful PE/VC-backed companies showing how these organizations benefited from PE/VC investments. “The common thread that emerges from the study is that Private Equity / Venture Capital investment, when chosen and leveraged well, can help Indian companies scale up rapidly and accelerate growth in several ways that add significant value to the Indian Economy,” said Arun Natarajan, CEO of Venture Intelligence. “The case studies in the report demonstrate how PE and VC firms are forging active partnerships with their investee companies to improve capital efficiency, business strategy and corporate governance, besides opening up new markets.”

The Private Equity Impact study, first conducted in 2007, measures the impact of PE and VC funds on the Indian economy using quantitative and qualitative methods – the only such initiative in India. This year, again with advice and guidance from Prof. Amit Bubna of the Indian School of Business-Hyderabad, the study revisited the theme of comparing PE- and VC-backed companies vis-à-vis their non PE/VC-backed peers using quantitative parameters.

The full report can be downloaded from http://ventureintelligence.in/peimpact.htm