India platform building requires GP commitment – AVCJ Forum

Platforms are attractive to GPs due to the control they offer. Rather than allying with an outside company with its own management team and its own acquisition plans, a platform-builder can map out a strategy for future bolt-ons itself. However, industry participants told the AVCJ India Forum, GPs must not let high expectations blind them to market realities.

"It sounds very interesting, but you could easily overpay for that first company and then try and justify things to yourself," said Pavan Gupte, managing director at Samena Capital. "You might say, ‘I'm buying it at 12x, but by next year our positions are going to be at 8x and therefore my blended average is going to be 9-10x.' And so you fool yourself into believing you've bought something cheap."

Investors also need to have their pipeline in place even before the first acquisition and make sure they are committed to following it. Wavering on a strategy in its initial stages can lead to long-term handicaps and ultimately leave a GP struggling to exit the acquired companies piecemeal rather than taking a completed platform to market.

"Typically most investment committees will say, ‘Let's do the first two deals and let's see how it goes. You say you'll achieve this, but will you really achieve it?'" said Rahul Goyal, managing director and general manager for India and Southeast Asia at consulting firm ADP. "And when the first two go wrong, then you get into this vicious cycle where you don't really scale up, and you're stuck with subscale assets."

As their investment strategies proceed, GPs need to bring value-add plans to the companies as well. This can be a particular challenge in the case of platforms, where investors must not only identify the issues with individual portfolio companies but also implement unified operating standards across every part of the platform. Successful platform strategies require executing both aspects according to the pre-determined plan.

"It's proven without any doubt that over time, entrepreneur-driven, fast-growing companies will accumulate inefficiencies in the form of hidden operating processes," said Samonnoi Banerjee, managing director of Bain Capital Advisors (India). "The first task should be to simplify that. And when the entrepreneurs and management team see the value, then you start standardizing it, and once you standardize the process then you can scale it up."

The AVCJ India Forum is taking place on December 5-6. For more information, go to www.avcjindia.com.

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• Topics
• South Asia
• GPs
• AVCJ Private Equity & Venture Forum
• buyout
• India
• Bain Capital Asia
• Samena Capital