Q&A: Everstone Capital's Atul Kapur

Q: Is investor sentiment on Indian private equity improving?

A: With the new government coming in, the sentiment in the public markets has changed considerably, as public markets always run ahead of expectations. In the private markets, LPs are a little more measured and careful, given that they have to sign up for a much longer duration of 7-8 years before they can see capital returned. In India, this continues to be the biggest issue LPs face - a very slow return of capital. Over the last six years we have had virtually no window of opportunity, where companies have managed to go public. Windows have opened for short periods and closed again. With the new government coming in, there is renewed hope that the policies enacted will be investor friendly, which will provide a boost to the capital markets. This will then enable a lot of the private equity investments that are waiting for exits through the capital markets to release capital.

Q: How is Everstone doing in terms of exits?

A: The first fund has seen three exits and we are about to do three more. We are looking to sell a stake in our healthcare services business and that should hopefully be concluded before the end of the year. In another, we are selling back our stake to the founder and in a third we are looking to file documents later this month, to take the company public sometime early next year. In the second fund, we have exited Transpole Logistics, which was sold to a Japanese trade buyer, and there are two other assets in the portfolio that are of a size, scale and profitability that we can seriously think about exiting over the next 12-18 months. The portfolio is relatively young; the weighted average duration is about 20 months. The investments that were made between early on in the life of the second fund have seasoned and are the ones that we are planning to exit over the next 18 months.

Q: On the investment side, are you seeing more control transactions?

A: If you have control over your destiny and own the asset outright you can always figure out an exit. Historically, we have seen a lot of minority transactions and public markets often turn out to be the only exit avenue for such investments. However, if you look at our second fund, two thirds of the investments in terms of capital invested are control transactions. Going forward, we see the proportion of control versus non-control to be in the same range. We recently completed our first IT services buyout. We are in the process of buying a large consumer products business from a global multinational and we are in the final stages of buying a services business from a US multinational. We recently signed a term sheet for a business that is too small to go public. It has three aging founders, two of whom are looking to exit the business. The remaining founder wants to continue to build this business and take it regional across Asia. Once we scale this business to an appropriate size, we think many exit opportunities will present themselves.

Q: Everstone is also heavily exposed to food and beverage businesses in India and outside of it. How is this structured?

A: We set up a holding company called F&B Asia. It has four businesses: the Burger King exclusive franchise in India; a chain of pubs called Harry's which we de-listed about 18 months ago in Singapore; Domino's in Indonesia where we own 51%; and another quick service restaurant business in Indonesia where we are likely to own 51%. Rather than finance each one separately we went to our LPs and explained our logic of building a large food and beverage platform in Asia, and offered a buy in. A lot of them were interested, so we raised over $200 million for this platform. We have the flexibility of either listing F&B Asia in Singapore or breaking the business up into its constituent parts and finding the right homes for them.

Q: What is your strategy for Southeast Asia?

A: Our current focus in Southeast Asia is Singapore and Indonesia. Our strategy in the region is very targeted. If there is industrial logic for expansion into these markets, organically or through acquisitions, with an existing portfolio company, or, where we understand the sector very well and we can find a good local partner, we will invest capital. Our primary focus in these markets is control transactions.

Q: How has the dynamic in the Indian GP community changed?

A: In 2006, a lot of people with no relevant experience raised money for private equity in India. That is not the case anymore. Go back to 1997-1998 and there were maybe 70 private equity funds; 60 of them were doing early-stage VC and a lot of them closed post-2001. There were maybe 10 private equity firms left. By 2007, that number was something like 200. Fast forward to 2014, and we can count no more than six firms that manage a fund larger than $500 million, and no more than ten firms that manage more than $500 million in assets. This is a very good situation for the market as it brings pricing discipline. If we go back to the situation like it was in 2007, with too much capital in the market, there will be a complete breakdown of this discipline again.

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• Topics
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• South Asia
• Everstone Capital
• Atul Kapur
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