India buyout market set to grow in 2020s

“If you go back and look at returns from private equity ... returns were good typically in periods when liquidity was low, valuations are benign and it gives you an opportunity to come in,” said Utsav Baijal, a senior partner and managing director at Aion, a special situations-focused joint venture launched by Apollo and ICICI Venture in 2013.

“From a distress standpoint, never have we seen the control opportunities which we see today. The market when we entered was 5-6% for buyouts but it's two-fifths today. For the first time, debt matters. Promoters realize that debt is indeed senior to equity.”

A slowdown precipitated by a liquidity crunch in the non-banking financial sector has seen the Indian growth story lose some of its sheen, with consumer-facing tech companies announcing layoffs and the central bank announcing a lower projection for growth in recent weeks.

However, this is expected to be offset in the coming decade by a stronger bankruptcy law, a growing appreciation of private equity by promoters and a new class of experienced entrepreneurs.

“India moved from crony socialism to crony capitalism in 1991 and this is the first time we're attempting to change cronyism,” Baijal added. “If they clean it up, it's going to be very good.”

Aion's current fund has made four investments but only one involves a distressed asset, a changing mix that is part of a rising trend as Indian promoters look to offload non-core assets. Everstone Capital, a mid-market buyout firm, has benefitted from this as well. Over the past decade, it has evolved from a minority investment-focused vehicle to a firm that now largely does control buyouts.

“In 2006 when we started investing, we never thought we would be in an environment where there would be that many control opportunities of size, scale and quality,” said Avnish Sharma, Everstone’s managing director.

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• Topics
• South Asia
• Buyouts
• GPs
• Aion Capital Partners
• India
• Everstone Capital
• HKVCA