Venture Intelligence recently spoke to Mintoo Bhandari who heads global PE firm Apollo's India subsidiary in Mumbai. Apollo recently consummated its first PE investment in India - a $100 million investment in DTH operator, DishTV. Prior to joining Apollo in the US (in 2006), Bhandari was Managing Director of India-focused private equity firm, The View Group. Interestingly, Apollo – when it comes to PE investments - has chosen to invest earlier in India than in China. (This interview was first published in the Jan-Mar 2010 issue of the Venture Intelligence India Roundup Private Equity report.)
Venture Intelligence: Can you tell us how the DishTV investment came about and what attracted you to the company?
Mintoo Bhandari: There were both macro and situation specific reasons why we found DishTV interesting. On the macro thesis: we believe India is perhaps the most attractive media market in the world today. India is a producer of significant unique content and there is voracious consumption of media content here. There are on the order of 500 million TV viewers and in excess of 100 million cable and satellite homes and these numbers are growing. Even with a large number of viewers, there is an abundance of channels and programming (some might say there is an excess), we felt that distribution would be the right focus for us in the media value-chain in India. And, in distribution, we felt that DTH would be a better solution for reaching the vast spread of households across India in a cost effective fashion and that DTH had a more “investor friendly” industry structure than cable represents in India today.
DishTV is the pioneer in this space in India (having obtained a license as early as 2003) and we have known Subhash Chandra (the principal promoter of DishTV) for some time. About two and a half years ago, he expressed an interest in getting us involved in the business and our providing inputs based on our extensive international cable and satellite experience. He invited us to join the board of Dish TV and we actively participated in board meetings of DishTV for a full 2 years before engaging actively in a dialog about investing in the company.
VI: Where is your investment going to be used and what do you expect next from Dish TV?
MB: Today, less than 20% of all cable and satellite households are on DTH. While the sector has picked up nicely in the last couple of years, there is still a lot of potential for growth and we believe that at least 40% of these C&S homes will be serviced by DTH, with much higher penetration levels outside of the major metropolitan areas. So the capital we provided will be used primarily for new subscriber acquisition, for funding marketing, and for deepening the distribution network.
VI: Are there any other sectors within Media that appeal to you?
MB: While we look across sectors, we tend to seek and prefer what we call “low variance of outcome” investment strategies. No investment is without risk and the media sector is known to be one of the most challenging for investors world-wide, so we focus on looking for opportunities where the reward outweighs the risk and we have some way of bounding and perhaps mitigating some of the risks.
Within media, content and other segments we have considered tend to be more dynamic – i.e., you can get a great return if you call it right (with regard to positioning and team, etc.) but there is also significantly more downside risk. Within Media, we think distribution, which relates to the number of subscribers rather than the number of eyeballs, represents a much more predictable, cash-flow oriented business model than content and other segments and it is a segment we understand well.
VI: Outside of media, what are the other sectors you are scoping out right now?
MB: We look for opportunities at the intersection of what Apollo is good at globally and the industries in which India has genuine advantages. Some the areas that fall in this intersection are mining and metals, highly engineered industrial products, business services, and media.
We are also very focused globally and in India on the chemicals space - our interest spans everything from basic chemicals through highly specialized chemicals (including fine chemicals and inputs for pharma companies). Driven by macro economic factors, we are looking closely at a whole host of infrastructure inputs such as steel, aluminum and cement. These industries should do well as India seeks to improve its infrastructure which is in dire need of repair and expansion. We also believe that India has long-term advantages in business process outsourcing and information technology and that those industries are likely to continue growing.
VI: In BPO, do you see any specific opportunities as the landscape has clearly changed and it has not been among the favored sectors among PE investors for a couple of years now?
MB: We like the industries and opportunities that are out of favor, especially when there are fundamental long-term strengths that we can build upon. We are attracted to the BPO arena and we have been looking at a couple of opportunities that speak to our contrarian, value orientation. We think that the long term competitive advantage for India in BPO is very, very robust and that if we are selective and can add value to the companies in which we invest, we should do extremely well.
VI: Given how other US buyout shops have taken to doing more growth and minority deals in India, is that something you will follow as well?
MB: We are not dogmatic about the style of investing. It has to be more about the quality of the opportunity rather than how it can be characterized at a “30,000 foot” level. We are very focused in the quality of a company’s market position and its future prospects, the drive and experience of the management, the ability of a business to generate significant cash flow, and the ability to invest at a price which doesn’t reflect the true value of these factors.
So, yes, we are happy to back an exceptional management team with whom we can align and add value in a growth situation. We would prefer to do that over seeking to do a buyout of a mediocre company with questionable long-term prospects. But, we won’t invest in any situation in which we can’t add value and in which we are expected to be a passive investor; our strong preference is to have meaningful involvement in any company in which we invest, but we don’t have to control everything that we go into. India is a competitive investment landscape and we believe the opportunity set demands creativity and flexibility.
VI: Is there a minimum ticket size for the deals you will look at?
MB: We believe that roughly 1-4% of Apollo’s current fund (Fund VII has ~$15 billion in committed capital) is an appropriate range for private equity deals in India. Given this fund size, that means we should be looking at equity checks of $150-600 million, which is on the higher end of the spectrum of deals generally contemplated in India. That being said, we are willing to be flexible and will consider somewhat smaller deals and will also go higher, if we find the risk-reward compelling and the context of the transaction is appropriate for a larger commitment.
VI: Given these parameters, do you see yourself doing more sole investments?
MB: It depends on the situation. But given the current fund size and desire to invest a reasonable percentage of the fund, there are not many deals in India that lend themselves to syndicates that would also accommodate our target equity check size.
VI: Outside of PE and Real Estate, Apollo internationally has very significant public market operations. Is that something you will bring to India as well?
MB: We are more inclined to explore the credit markets than the public equity angle in India. So we may focus on creating a credit platform that will be India specific that will look to help companies, not only with equity financing but also with the provision of debt in creative and dynamic ways that we believe Indian corporates will appreciate.
VI: As someone who worked previously at Harvard University’s endowment, what is your reading of the current fund raising environment in India for independent GPs vis-Ã -vis global funds like you?
MB: There are only a few investment strategies for which the private equity community will likely be able to confidently raise capital over the next couple of years. One of the in-demand themes will likely relate to managers that can deliver unique capabilities and experience in emerging markets such as India. Having said that, I do feel that generally the fund raising environment is very challenging. You need to have some genuinely unique capabilities and ingredients to be successful in raising capital today given the experience the industry as a whole over the past few years and the impact that the financial crisis has had on a wide array of LP’s.
Venture Intelligence: Can you tell us how the DishTV investment came about and what attracted you to the company?
Mintoo Bhandari: There were both macro and situation specific reasons why we found DishTV interesting. On the macro thesis: we believe India is perhaps the most attractive media market in the world today. India is a producer of significant unique content and there is voracious consumption of media content here. There are on the order of 500 million TV viewers and in excess of 100 million cable and satellite homes and these numbers are growing. Even with a large number of viewers, there is an abundance of channels and programming (some might say there is an excess), we felt that distribution would be the right focus for us in the media value-chain in India. And, in distribution, we felt that DTH would be a better solution for reaching the vast spread of households across India in a cost effective fashion and that DTH had a more “investor friendly” industry structure than cable represents in India today.
DishTV is the pioneer in this space in India (having obtained a license as early as 2003) and we have known Subhash Chandra (the principal promoter of DishTV) for some time. About two and a half years ago, he expressed an interest in getting us involved in the business and our providing inputs based on our extensive international cable and satellite experience. He invited us to join the board of Dish TV and we actively participated in board meetings of DishTV for a full 2 years before engaging actively in a dialog about investing in the company.
VI: Where is your investment going to be used and what do you expect next from Dish TV?
MB: Today, less than 20% of all cable and satellite households are on DTH. While the sector has picked up nicely in the last couple of years, there is still a lot of potential for growth and we believe that at least 40% of these C&S homes will be serviced by DTH, with much higher penetration levels outside of the major metropolitan areas. So the capital we provided will be used primarily for new subscriber acquisition, for funding marketing, and for deepening the distribution network.
VI: Are there any other sectors within Media that appeal to you?
MB: While we look across sectors, we tend to seek and prefer what we call “low variance of outcome” investment strategies. No investment is without risk and the media sector is known to be one of the most challenging for investors world-wide, so we focus on looking for opportunities where the reward outweighs the risk and we have some way of bounding and perhaps mitigating some of the risks.
Within media, content and other segments we have considered tend to be more dynamic – i.e., you can get a great return if you call it right (with regard to positioning and team, etc.) but there is also significantly more downside risk. Within Media, we think distribution, which relates to the number of subscribers rather than the number of eyeballs, represents a much more predictable, cash-flow oriented business model than content and other segments and it is a segment we understand well.
VI: Outside of media, what are the other sectors you are scoping out right now?
MB: We look for opportunities at the intersection of what Apollo is good at globally and the industries in which India has genuine advantages. Some the areas that fall in this intersection are mining and metals, highly engineered industrial products, business services, and media.
We are also very focused globally and in India on the chemicals space - our interest spans everything from basic chemicals through highly specialized chemicals (including fine chemicals and inputs for pharma companies). Driven by macro economic factors, we are looking closely at a whole host of infrastructure inputs such as steel, aluminum and cement. These industries should do well as India seeks to improve its infrastructure which is in dire need of repair and expansion. We also believe that India has long-term advantages in business process outsourcing and information technology and that those industries are likely to continue growing.
VI: In BPO, do you see any specific opportunities as the landscape has clearly changed and it has not been among the favored sectors among PE investors for a couple of years now?
MB: We like the industries and opportunities that are out of favor, especially when there are fundamental long-term strengths that we can build upon. We are attracted to the BPO arena and we have been looking at a couple of opportunities that speak to our contrarian, value orientation. We think that the long term competitive advantage for India in BPO is very, very robust and that if we are selective and can add value to the companies in which we invest, we should do extremely well.
VI: Given how other US buyout shops have taken to doing more growth and minority deals in India, is that something you will follow as well?
MB: We are not dogmatic about the style of investing. It has to be more about the quality of the opportunity rather than how it can be characterized at a “30,000 foot” level. We are very focused in the quality of a company’s market position and its future prospects, the drive and experience of the management, the ability of a business to generate significant cash flow, and the ability to invest at a price which doesn’t reflect the true value of these factors.
So, yes, we are happy to back an exceptional management team with whom we can align and add value in a growth situation. We would prefer to do that over seeking to do a buyout of a mediocre company with questionable long-term prospects. But, we won’t invest in any situation in which we can’t add value and in which we are expected to be a passive investor; our strong preference is to have meaningful involvement in any company in which we invest, but we don’t have to control everything that we go into. India is a competitive investment landscape and we believe the opportunity set demands creativity and flexibility.
VI: Is there a minimum ticket size for the deals you will look at?
MB: We believe that roughly 1-4% of Apollo’s current fund (Fund VII has ~$15 billion in committed capital) is an appropriate range for private equity deals in India. Given this fund size, that means we should be looking at equity checks of $150-600 million, which is on the higher end of the spectrum of deals generally contemplated in India. That being said, we are willing to be flexible and will consider somewhat smaller deals and will also go higher, if we find the risk-reward compelling and the context of the transaction is appropriate for a larger commitment.
VI: Given these parameters, do you see yourself doing more sole investments?
MB: It depends on the situation. But given the current fund size and desire to invest a reasonable percentage of the fund, there are not many deals in India that lend themselves to syndicates that would also accommodate our target equity check size.
VI: Outside of PE and Real Estate, Apollo internationally has very significant public market operations. Is that something you will bring to India as well?
MB: We are more inclined to explore the credit markets than the public equity angle in India. So we may focus on creating a credit platform that will be India specific that will look to help companies, not only with equity financing but also with the provision of debt in creative and dynamic ways that we believe Indian corporates will appreciate.
VI: As someone who worked previously at Harvard University’s endowment, what is your reading of the current fund raising environment in India for independent GPs vis-Ã -vis global funds like you?
MB: There are only a few investment strategies for which the private equity community will likely be able to confidently raise capital over the next couple of years. One of the in-demand themes will likely relate to managers that can deliver unique capabilities and experience in emerging markets such as India. Having said that, I do feel that generally the fund raising environment is very challenging. You need to have some genuinely unique capabilities and ingredients to be successful in raising capital today given the experience the industry as a whole over the past few years and the impact that the financial crisis has had on a wide array of LP’s.