The Economic Times

Indian companies need PE investors

India has become a magnet for fortune-seeking private equity investors. But many Indian companies remain sceptical that these deep-pocketed suitors have anything unique to offer.

著者：Sri Rajan and Ashish Singh

First published on 12月 08, 2006
min read


India has become a magnet for fortune-seeking private equity investors. But many Indian companies—notably the family-run businesses that are powering the nation's economic growth—remain sceptical that these deep-pocketed suitors have anything unique to offer. It would be a mistake, however, to write off today's private equity investors, who are helping to launch new global players in many industries, thanks to the discipline, focus and financial savvy they bring to bear. More than 30 domestic and international funds with an estimated $4 billion to invest are now scouring the subcontinent for deals. Yet, data assembled by Bain & Company covering some 80% of the nearly $6.5 billion in private equity investments made since 2000 reveal that nearly half were for $100 million or less, with an average deal size of just $21 million. And with interest rates declining and the public equity markets riding high, Indian entrepreneurs have found that it is easier to borrow or issue new shares than to risk ceding too much control to these hard-charging strangers. Understanding the value of working with private equity investors is worth a closer look. Indian companies stand to benefit by taking advantage of private equity investors' three core capabilities: Private equity opens doors. Indian entrepreneurs' ability to forge ties with businesses across the globe has propelled India's economic success. Private equity investors can accelerate that process by providing access to extensive networks of suppliers, potential customers, other investors and outside management experts. They are masters at matching talent and resources across their holdings, enabling companies in their portfolios to help one another. Nimbus Communications, a diversified media company based in Mumbai, is harnessing its business goals to the network connections of 3i, the big London-based private equity firm. With India's media sector projected to nearly double to some $14 billion by 2010, Harish Thawani, the company's founder and chief executive, acted to jump-start his company by selling 3i a 33% stake in Nimbus for $45.5 million in August 2005. Nimbus is looking to 3i for introductions to potential partners from among its portfolio of 1,500 companies across Europe, the US and Asia, and is tapping the industry expertise of the firm's 300 investment professionals. Thawani and 3i plan to deploy those resources to acquire broadcast rights, fund TV and feature-film production, and develop digital content for wireless distribution. Says Thawani: "We share a common belief in the global abilities of Nimbus, and that's where I believe 3i will add strategic value." Private equity firms know their way around M&A. World-class Indian companies are looking to acquire stakes in strategic partners beyond south Asia and are, themselves, potential merger candidates for companies looking to expand their presence in India. The disciplines needed to consummate successful mergers are the private equity firms' strong suit. They begin with an investment thesis about how a potential deal creates value and then test all assumptions before they commit. Punj Lloyd, a Delhi-based engineering construction firm, used the M&A expertise of private equity partners to turbocharge its international growth. A consortium led by Standard Chartered Private Equity put up $50 million for a stake in Punj Lloyd in early 2005, and set about helping the company increase its revenues derived from projects outside of India from around half to more than 70% by 2008. Tapping the connections of co-investor Temasek Holdings, the Singapore-based private equity firm, the team structured a merger with Singapore's SembCorp Engineers and Constructors, a competitor with strong ties to markets in Europe and Central Asia where Punj Lloyd was thin. Within a year, the deal was sealed. With a healthy project order book, Punj Llyd made an initial stock offering that commanded a 50% premium just hours after shares began trading. Private equity elevates corporate governance. Transparency and independent oversight—key attributes of good corporate governance anywhere—are especially important in India, where company boards often operate through close family ties. Private equity directors can bring fresh talent and formal discipline to the board room. Sunil Mittal, the founder of mobile telecommunications company Bharti Tele-Ventures Ltd, knew his fast-growing business would need the seasoned judgement that only a strong board can provide. So when the Indian government relaxed regulations to allow cell-phone services to expand in 1998, Mittal responded eagerly to a call from Pulak Prasad, a managing director with Warburg Pincus, the private equity firm headquartered in the United States. Bharti welcomed the firm's $292 million investment; and Prasad's service on Bharti's board has proved to be equally valuable. Prasad helped Bharti formulate an expansion strategy, bring aboard experienced senior managers and guide the company through an initial public stock offering in early 2002 that raised $172 million. Both Bharti and Warburg profited from the collaboration. In 2005, Warburg sold its Bharti stake to Vodafone for $1.3 billion. (Warburg sold its final stake to Vodafone in 2005 for 847.5 million. It made 1.3 billion on Bharti total, but only 847.5 million came from Vodafone.) How do you choose the right private equity partner? For many companies, attracting the highest bid may be a top priority. At the end of the day, however, the decision must fundamentally be based on trust in the partner's capacity to build value. Indian companies that see their way to forging such private equity partnerships will be on a fast track to global expansion. Rajan and Singh are partners with Bain & Company India.

India has become a magnet for fortune-seeking private equity investors. But many Indian companies—notably the family-run businesses that are powering the nation's economic growth—remain sceptical that these deep-pocketed suitors have anything unique to offer. It would be a mistake, however, to write off today's private equity investors, who are helping to launch new global players in many industries, thanks to the discipline, focus and financial savvy they bring to bear.

More than 30 domestic and international funds with an estimated $4 billion to invest are now scouring the subcontinent for deals. Yet, data assembled by Bain & Company covering some 80% of the nearly $6.5 billion in private equity investments made since 2000 reveal that nearly half were for $100 million or less, with an average deal size of just $21 million. And with interest rates declining and the public equity markets riding high, Indian entrepreneurs have found that it is easier to borrow or issue new shares than to risk ceding too much control to these hard-charging strangers.

Understanding the value of working with private equity investors is worth a closer look. Indian companies stand to benefit by taking advantage of private equity investors' three core capabilities:

Private equity opens doors. Indian entrepreneurs' ability to forge ties with businesses across the globe has propelled India's economic success. Private equity investors can accelerate that process by providing access to extensive networks of suppliers, potential customers, other investors and outside management experts. They are masters at matching talent and resources across their holdings, enabling companies in their portfolios to help one another.

Nimbus Communications, a diversified media company based in Mumbai, is harnessing its business goals to the network connections of 3i, the big London-based private equity firm. With India's media sector projected to nearly double to some $14 billion by 2010, Harish Thawani, the company's founder and chief executive, acted to jump-start his company by selling 3i a 33% stake in Nimbus for $45.5 million in August 2005.

Nimbus is looking to 3i for introductions to potential partners from among its portfolio of 1,500 companies across Europe, the US and Asia, and is tapping the industry expertise of the firm's 300 investment professionals. Thawani and 3i plan to deploy those resources to acquire broadcast rights, fund TV and feature-film production, and develop digital content for wireless distribution. Says Thawani: "We share a common belief in the global abilities of Nimbus, and that's where I believe 3i will add strategic value."

Private equity firms know their way around M&A. World-class Indian companies are looking to acquire stakes in strategic partners beyond south Asia and are, themselves, potential merger candidates for companies looking to expand their presence in India. The disciplines needed to consummate successful mergers are the private equity firms' strong suit. They begin with an investment thesis about how a potential deal creates value and then test all assumptions before they commit.

Punj Lloyd, a Delhi-based engineering construction firm, used the M&A expertise of private equity partners to turbocharge its international growth. A consortium led by Standard Chartered Private Equity put up $50 million for a stake in Punj Lloyd in early 2005, and set about helping the company increase its revenues derived from projects outside of India from around half to more than 70% by 2008.

Tapping the connections of co-investor Temasek Holdings, the Singapore-based private equity firm, the team structured a merger with Singapore's SembCorp Engineers and Constructors, a competitor with strong ties to markets in Europe and Central Asia where Punj Lloyd was thin. Within a year, the deal was sealed. With a healthy project order book, Punj Llyd made an initial stock offering that commanded a 50% premium just hours after shares began trading.

Private equity elevates corporate governance. Transparency and independent oversight—key attributes of good corporate governance anywhere—are especially important in India, where company boards often operate through close family ties. Private equity directors can bring fresh talent and formal discipline to the board room.

Sunil Mittal, the founder of mobile telecommunications company Bharti Tele-Ventures Ltd, knew his fast-growing business would need the seasoned judgement that only a strong board can provide. So when the Indian government relaxed regulations to allow cell-phone services to expand in 1998, Mittal responded eagerly to a call from Pulak Prasad, a managing director with Warburg Pincus, the private equity firm headquartered in the United States. Bharti welcomed the firm's $292 million investment; and Prasad's service on Bharti's board has proved to be equally valuable.

Prasad helped Bharti formulate an expansion strategy, bring aboard experienced senior managers and guide the company through an initial public stock offering in early 2002 that raised $172 million. Both Bharti and Warburg profited from the collaboration. In 2005, Warburg sold its Bharti stake to Vodafone for $1.3 billion. (Warburg sold its final stake to Vodafone in 2005 for 847.5 million. It made 1.3 billion on Bharti total, but only 847.5 million came from Vodafone.)

How do you choose the right private equity partner? For many companies, attracting the highest bid may be a top priority. At the end of the day, however, the decision must fundamentally be based on trust in the partner's capacity to build value. Indian companies that see their way to forging such private equity partnerships will be on a fast track to global expansion.

Rajan and Singh are partners with Bain & Company India.