PE rides M&A wave in Indian security

Should the investment go through, Blackstone would continue a trend of private equity investment in India’s security sector. ICICI Venture Funds Management injected $26.74 million in Topsgrup in 2007; DE Shaw acquired a 14% stake in the Indian operations of Security and Intelligence Services (SIS) in 2008; Standard Chartered Private Equity took invested $33 million in Firepro Systems in 2009; and in May of this year SIS entered into a local joint venture with Prosegur, the world’s second-largest private security company by market capitalization.

This activity is primarily motivated by the sector’s prospects. Market watchers estimate that security in India could be worth anything between INR30,000 crore ($6.7 billion) and INR50,000 crore ($11.1 billion) by 2015. Rising demand will also increase the pressure on security firms’ ability to provide what is already a vast range of services.

“The security risk varies significantly throughout India,” Richard Dailly, India managing director for Kroll, a risk consultancy told AVCJ. “For instance, there is an ongoing risk from radical Islam, which although has not manifested itself for a couple of years, has not gone away.” He notes that international hotel companies, which typically occupy the kind of iconic buildings that are considered high-risk terror targets, have improved security but quality is still patchy.

Corporate spending

Mahad Narayanamoni, a corporate finance partner at Grant Thornton India, sees terrorism as a red herring in terms of expenditure on security. He says that “corporatization of services” began well before the 2008 attacks and it was driven by companies increasing budgets for facilities management in general, including security.

The India Private Security Agencies Act, which came into effect in 2005, has also had a significant impact, imposing regulation on the industry and thereby pushing up compliance costs and fees. In this context, further private equity involvement is likely.

“There are clear signs of market consolidation in this industry, as larger players look to acquire smaller operators – especially those that focus on a particular service or geographical area – with a view to sustaining high growth,” Narayanamoni says. “Increasing competition has also put pricing under pressure, making scale an important consideration.” 

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• Topics
• South Asia
• Support services
• Standard Chartered Private Equity
• The Blackstone Group
• ICICI Venture Funds Management Company