Industry Q&A: Anil Chawla, D.E. Shaw

Q:    How does your firm attempt to differentiate itself in the Indian market? What do you see as its key strengths and value-adding propositions?

A:    We believe our investment approach differentiates us from most other players in the Indian market.  As part of the D. E. Shaw group, a global investment firm with about $20 billion in investment capital, we are able to take advantage of our firm's flexible capital base, broad capital markets expertise, and global relationships. This allows us to look at deals of all sizes and structures, across a wide array of sectors, and it allows us to craft customized financing solutions that meet our portfolio companies' needs.  We have done deals with equity, debt, and hybrid securities, and in certain cases have even provided short-term debt for working capital for our investee companies. Our smallest investment is $5 million while our largest investment was a $400 million deal. We also view our speed at making deals happen as an advantage—for example, we completed the DLF Assets transaction, our largest Indian deal to-date, from sourcing to funding within only 30 days.

Another differentiating factor is our experience operating in India. We established a presence in India in 1996, began investing in the country nearly 10 years ago, and now employ over 700 people in Gurgaon, Hyderabad, and Mumbai. We are a global player, but we know the local markets and regulatory regime well. This helps us to understand the requirements of promoters and companies and to structure and quickly execute complex transactions that meet their needs.

Q:    What deals have you done in India to date and how do you approach the market?

A:    Our India private equity unit has executed 13 transactions with a total notional value of approximately $1.2 billion. Rather than chasing competitive deals, we focus on offering unique financing solutions that very few of our competitors can provide. Another important factor is our assessment of the promoter group – we want to forge long-term relationships with respected promoters. Finally, we have focused on identifying sectors that we think are poised for rapid growth and taking early positions in outstanding players within these sectors. We've been able to do this in sectors like education, security, animation, gaming, and renewable energy.

Q:    What is your strategy in deal sourcing? How do you look to access opportunities, especially in competition with the capital markets?

A:    We typically look for firms with sound business models and strong management and/or promoters in sectors that we've identified as having particularly good growth prospects, but we are open to almost any opportunity which we believe is reasonably valued and offers attractive risk-adjusted returns. Our investment team has deep relationships across the country that we use to source proprietary opportunities. Since we have a flexible capital structure and expertise in structuring unique deals, we can work closely with investee companies and collaborate to determine the ideal mode of financing which we feel will be a win-win for all parties. I think we've developed a reputation for fast execution, flexible structuring, and working collaboratively with portfolio companies, all of which helps convince promoters that they want to work with us.

Q:    Once in an investment, how do you attempt to influence or work with a promoter? What is the extent of your influence, and how is this exercised?

A:    We look to collaborate with promoters, providing assistance in areas in which we have special expertise or relationships. For example, we had a portfolio company well positioned to get into motion picture production, but which had no experience doing such deals. We were able to leverage our firm's experience in this area to help them sign a film development deal with a Hollywood studio and set up a motion picture financing vehicle. We also worked with a leading company in the education sector to help its management to hire senior talent, complete an acquisition, identify offshore acquisitions, and run an IPO process. By bringing resources and experience as well as capital, we believe we can improve the fortunes of our portfolio companies and our investment results.

Q:    What is your expectation for the growth of the Indian private equity market over the next two to five years? Where do you expect your own firm to be positioned?

A:    We continue to remain bullish on India and we look forward to 2011as an opportunity to further invest. Given its current growth rates, India is one of the top-performing economies in the world and I expect this trend to continue in the foreseeable future. While public valuations have increased substantially, we are seeing attractive opportunities on the private side.

We believe the private equity business in India will continue to generate attractive returns. With capital becoming an increasingly available commodity, entrepreneurs will choose partners who can differentiate themselves and add value to their companies. With our size, global reach, flexible capital base, and local expertise, we hope that we will continue to attract strong companies that we can help to grow.

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• Topics
• South Asia
• People
• Performance
• D. E. Shaw
• Anil Chawla