Big, bold and bullish

The desire for control, the struggle for funding, a changing tax regime and increased liability are some of the key themes dominating India’s private equity landscape. Vandana Chatlani reports

Last year was a year of big and bold transactions. Blackstone invested US$1.1 billion in Bengaluru-based IT services company Mphasis in its largest acquisition in India and the largest M&A deal in the country’s outsourcing sector. Also in 2016, AION India Investment Advisors and former GE senior executives acquired GE Capital’s commercial lending and leasing business in India for US$350 million; KKR and Singapore’s Temasek Holdings agreed to buy a 3.9% stake in SBI Life Insurance for US$265 million; and Brookfield Group signed a pact with Reliance Communications to purchase a 51% stake in its tower unit, Reliance Infratel.

It was likewise a year of profitable exits. KKR sold its controlling interest in Alliance Tire Group to Japan’s Yokohama Rubber for US$1.2 billion in one of the largest private equity exits from an India-focused investment, while Temasek exited from Bharti Telecom with US$700 million, and CX Partners and Capital Square Partners moved out from Minacs in a strategic sale valued at US$420 million – one of the most successful Asian private equity exits in the IT services industry.

“LPs [limited partners] had some good reasons to celebrate last year with a few solid exits,” says Sidharth Bhasin, a partner at Shearman & Sterling who advised CX Partners and Capital Square Partners on their exit from Minacs.

“There have been several large deals, such as Brookfield-Reliance Infratel and Blackstone-Mphasis, but the Housing-PropTiger merger stands out,” says Yash Rana, a partner at Goodwin Procter in Hong Kong who worked on the deal. Real estate website PropTiger merged with property listing portal Housing.com with investments from News Corp Australia’s REA Group and Japan’s SoftBank Group. The deal was mired in controversy after management issues and aggressive expansion moves threw Housing.com, one of India’s most promising startups, off track before SoftBank helped usher in new leadership. Rana says the merger is not significant because of deal value or any particular complexities, “but as a sobering resolution to the story of one of India’s break-away startups”.

“The Housing-PropTiger deal [is also noteworthy] because it shows that a promoter leaving or becoming ‘rogue’, so to speak, does not mean the end of the road for a company,” says Suneeth Katarki, a partner at IndusLaw in Bengaluru. In addition, he singles out the acquisition, by online baby products retailer Firstcry, of Mahindra Retail, which owns the Babyoye brand, as it “shows that a traditional business can merge with a new-age business and find value”. That deal involved private equity investors Adveq, IDG Ventures India, NEA, SAIF Partners and Vertex. Katarki also points to Warburg’s investment in Kalyan Jewellers, which “again reaffirms faith in traditional Indian businesses and models”.

CURRENT MOOD AND GLOBAL PLAYERS

According to Bain & Company’s India Private Equity Report 2017, private equity exits totalled US$9.6 billion in 2016, while total private equity deal value in the same time period was US$16.8 billion – the second highest total in the past nine years.

Healthy business opportunities

Dynamism endures