Business Today – August 25, 2019

FINANCE>PRIVATE EQUITY

38 IBUSINESS TODAYIAugust 25 I 2019

for India, with estimates pegging it at
$11 billion as of now. Of the $4 billion
that Asia-focussed fund Blackstone
Group raised in April 2018, about
60 per cent was earmarked for India.
The same is true for biggies like KKR
and Brookfield. “With dry powder
(funds) available, PEs are also scout-
ing for the right kind of companies to
invest in,” says Vohra.
PE investors need to meet their
internal rate of return (IRRs) tar-
gets, and in an emerging market
scenario, they are heavily dependent
on growth. “India is still one of the
emerging markets that offer good
growth potential and have not had a
major accident so far. India remains
attractive from the macroeconomic
and political stability perspective
despite issues like currency depre-
ciation or the recent slowdown in
growth,” says Murugaiyan.
PEs deploy funds from a global
pool of capital and compare the risk-
reward metrics to other investment
opportunities that they have. That is
why, says Murugaiyan, it will not be
correct to think of PE firms as just
bargain hunters. “They do not buy be-
cause valuations are cheap but buy at
a point when they can make returns
on their investment,” he says.
Currently, some of the distressed
promoters like Kapil Wadhawan of
DHFL and Subhash Chandra of Es-
sel Group are scouting for buyers for
their businesses to repay debt. While
both have been in talks with PE
firms and strategic investors, no deal
has been finalised yet.
“There are separate distress and
turnaround funds which look at dis-
tressed assets. But a majority of PEs
are looking for growth as the primary
thesis of their investments. PEs can
buy at high multiples also if they be-
lieve they can make returns on their
investment and exit in five to seven
years,” Murugaiyan adds.
With PE steadily gaining a firm
footing in India, it may also impact
corporate culture in the long run.
Vohra says there are bound to be sub-
tle as well as dramatic changes if PEs
continue to get a bigger slice of India

organisation that is largely family-

driven with centralised decision-

making, is bound to become more

decentralised. “Their presence will

also impact the board structure along

with compliance and governance,”

adds Vohra.

Relationships of company pro-

moters with PE investors are not al-

ways fairy tales. In fact, if returns on

investment are not as expected, PEs

can be the biggest nightmare for any

entrepreneur. While Cafe Coffee Day

Founder V.G. Siddhartha mentioned

in his last letter that one of his PE

partners was forcing him to buy back

his firm’s shares, this is just one in-

stance of how PEs can be a bane.

Typically, PEs buy into equity but

their investments are structured on

the lines of debt as they expect fixed

returns. And when companies come

under financial pressure, unable to

generate the promised returns, they

are taken over by the PE firms.

In India, Lilliput Kidswear owner

Sanjeev Narula moved the court in

2011, alleging that PE investors Bain

Capital and TPG (owning 45 per

cent) were trying to take over control

of the company by choking funding.

The claims were disputed by the two

PE partners. Other relationships that

turned sour include that of Sagar

Ratna founder Jayaram Banan and

India Equity Partners; Maiyas Bev-

erages founder P. Sadananda Maiya

and PE investors including Peepul

Capital; and clash of Actis Capital

with Mudaliar family, promoters of

Nilgiri Dairy Farm.

Since PE firms in India were so

far getting access to only small and

mid-sized companies, the sever-

ity of disputes was at a similar scale.

As they get into bigger companies,

equally bigger battles for money and

control cannot be ruled out.

The growing presence of PE firms

will lead to apparent changes, but the

fact remains that they offer a robust

pool of capital which is a credible al-

ternative to capital markets or strate-

gic exits for companies.

@RashmiPratap3

“Larger business

groups are open

to aggressive

restructuring by selling

non-core assets”

Ganeshan Murugaiyan

MD and Head of Investment

Banking, BNP Paribas India

Why the PE

Route?

The liquidity crisis in the

banking system has dried

up funds and large compa-

nies have been forced to

look elsewhere.

High debt levels of many

companies have made

them unattractive to

traditional lenders.

Many large global PE firms

are on the lookout for

avenues to invest.

Indian companies are keen

to divest non-core assets.

Taking on PE firms helps

companies diversify

ownership and profession-

alise operations.

Inc. “Most PE funds invest for a cer-

tain time frame. Sometimes, they get

a newer management, aligned with

the PE investors, to get the metrics

right in a specified time period. So

they move in a focussed direction to

achieve the metrics,” Vohra says.

Moreover, with a PE investor, any