PE firms take the lead on deal street for India Inc

Boby Kurian & Reeba Zachariah | TNN

Mumbai: Private equity (PE) investors are driving India’s deal-making spree and emerging as industry

consolidators

, even as domestic conglomerates stay glued to the tenuous merger and acquisition (M&A) opportunities piling up in

bankruptcy courts

. PE firms are actively pursuing platform acquisitions — as part of a roll-up plan in specific sectors — and multi-billion-dollar buyouts as they pumped more than $32 billion into the country in the past 18 months.

PE investing is now anchoring the Indian deal activity with global funds

KKR

,

Blackstone

and

Carlyle

raising a higher volume of capital for Asia, while homegrown managers

Everstone Capital

,

ChrysCapital

,

True North

and

Multiples Alternate Asset Management

tap the market for bigger war chests. They are cashing in on the fund-raising binge of the past two years with data firm

Preqin

estimating a record $1.8-trillion dry powder available for PE investing globally.

PE investors are at the forefront of several large and mid-market buyout opportunities playing out currently. For example, the potential acquisition of

PNB Housing Finance

, still in the preliminary days, has seen buyout funds exploring consortia to test a deal of up to $2.25 billion. In this bulge-bracket deal-making, Blackstone could partner with sovereign wealth manager

GIC of Singapore

, or KKR could ally with

Canadian Pension Plan Investment Board

. Sovereign wealth and global pension funds, which are capital providers to PEs, are increasing allocation to invest directly or along with existing asset managers in Asia’s third-largest economy.

While headline-grabbing deals are under way, PE firms are venturing into platform acquisitions, which provide them a sizeable entry into a specific sector and carry the potential to roll up. In PE parlance, a roll-up is defined as a process where multiple small companies in the same business or market are acquired or merged.

Warburg Pincus

, KKR,

Samara Capital

, Everstone,

Multiples

and

TPG

, among others, have all launched platforms for the roll-up act across business services, media & entertainment, financial services, foods, IT & BPO and healthcare. Some of these investors are competing to build platforms in a fragmented but high growth sector like business services — catering to people services, facilities management, operations & maintenance and compliance management — after Quess Corp’s blockbuster IPO, which has seen its market value almost triple since the stock exchange debut two years ago.

Everstone is rolling up a foods platform following its acquisition of Modern Foods, through which it snapped up Cookie Man recently. Samara Capital, along with Goldman Sachs and Janchor Partners, has launched a business services platform called First Meridian focused on HR and staffing companies. Earlier this year, Warburg floated a BPO platform with three former Genpact senior executives. KKR has struck a slew of acquisitions under the entertainment platform Emerald Media founded by Rajesh Kamat and Paul Aiello. TPG has expanded Asia Healthcare Holdings (AHH) with a string of single specialty healthcare acquisitions.

Ajay Arora, M&A head at EY, said, “The platform acquisitions and their roll-ups have made PE investors the main consolidation force in several high-growth sectors, as they stand to benefit from both growth as well as multiple arbitrage.” In roll-ups, the smaller acquisitions are often done at a relatively lower multiple, giving the platform owner an arbitrage advantage, he added.

The expanding tribe of professionals-turned-entrepreneurs — who have aligned with PE firms — has boosted the latter’s deal-making abilities. Take the case of V Vaidyanathan who aligned with Warburg in building Capital First, or Vishal Bali along with TPG in rolling up AHH, or Anant Daga of TCNS Clothing who worked with TA Associates in taking the company for an IPO.

Bhavesh Shah, CEO of boutique investment bank Avener Capital, said, “Talent backed by capital is the mantra that private equity firms leveraged on to drive consolidation in various sectors. This coincides with Indian promoters being more open to ceding control of their companies to be a part of a larger play and growth.”

Agreeing with Shah, Akshay Chudasama, managing partner, Shradul Amarchand Mangaldas, said, “Both control and platform deals are done to back talent as well as to consolidate positions in the market. This is also a sign that it is no longer necessary that businesses need to be run by family-promoters and can be run by professionals.”