India to remain a growth capital market, despite rise in buyouts - AVCJ Forum

Shankar Narayanan, managing director at The Carlyle Group, said that despite the potential for more control deals, minority deals will likely continue to define the market as few promoters are incentivised to give up control.

"The majority of deals in India will continue to be minority investments because many mid-sized companies are looking to scale up and it doesn't make economic sense for people to sell at that stage," he said.

Instead of seeking control, Narayanan stressed that the choice of promoter - and being able to treat that promoter as a partner - is more important. He added that the reason a lot of the investments have become unworkable is because interests between GP and promoter are no longer aligned.

On the other hand, while recognizing that India will remain a minority market, Prateek Dhawan, managing director with Everstone Capital, emphasized the importance of control.

"The lessons we have learned from our earlier funds is that we have to be in control of our destiny," said Dhawan. "We are seeing enough traction for buyout deals and believe being in control and having more avenues for exits is the right way. That is why our focus will be on doing more buyouts."

He added that his firm would continue to look at minority deals but it will not be a passive shareholder.

Gautham Radhakrishnan, a partner with Tata Opportunities Fund, meanwhile, stressed that the ability to privatize companies will be a key factor in determining the future of control transactions in India.

"Where there is an ability to delist companies, that will be the single biggest source of control transactions," he said. "Because the alternative is take control of companies where there are succession issues and that is a question of making sure you know who you are backing - this is not a market that is full of people who have been backed before and it is not a market that is replete with corporate carve-outs."

The value of announced M&A deals involving Indian companies stood at $43.4 billion last year, up 12% on 2011, according to Thomson Reuters. But corporates, foreign and domestic, have won most of these.

So far in 2014, $444 million has been deployed in buyout deals, but it is the previous two years that offered a peek at the scale of the opportunity. In 2012, deal flow reached $897 million, the highest level since the peak of 2007; in 2013, the total surpassed $1.3 billion, the largest annual figure on record.

The AVCJ India Forum runs from December 2-3 in Mumbai. For more information, go to www.avcjindia.com.

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• Topics
• South Asia
• Buyouts
• Expansion
• India
• Everstone Capital
• Tata Capital
• buyout
• The Carlyle Group
• Growth capital