Private equity investors may be back

MUMBAI | BANGALORE: The poll verdict could well be the turning point for private equity (PE) investors and investment bankers who were waiting on the sidelines of the Indian market for several months. With the installation of a stable government at the Centre likely to give a fillip to investor sentiment, dealmakers expect companies to target institutional investors with a slew of preferential equity issues over the next few months.

Mergers and acquisitions (M&A) as well as PE deals have fallen in the past few months. According to Thomson Reuters, M&A volumes in the calendar year-to-date have crashed by 71% to $6.5 billion against $22.7 billion in the corresponding period last year. Similarly, PE deals have fallen 51.2% to $682 million.

���Deal flows will increase. We see a rise in deals in both the private equity and M&A spaces. The simple reason is that there will be clarity in policy. Long-term investors look for conducive policies,��� said Rajeev Gupta, MD and head of India Buyout team, Carlyle Group. He added that immediate deals will come from corporates which need money, as promoters of companies, hard-pressed for funds, may use the current surge in the markets to sell part of their businesses. ���Those who don���t need capital will negotiate,��� he added.



���India represents attractive long-term play. Market moves don���t take away from that although they may expedite or slow down deal closures, depending on how the various stakeholders feel,��� said Sanjay Nayar, CEO and country head, KKR, India.

The qualified institutional placement (QIP) market, which has seen deals close to $1 billion in recent weeks, could see a revival. ���Several companies are planning QIPs and we should see between $3 billion and $5 billion being raised by end June if this market trend continues,��� says Manoj Agarwal, head corporate finance, ABN Amro (global banking & markets).

The improvement in sentiment could see firms charting and investing in expansion plans once again. This will spur the need for growth capital and improve the prospects for PE. Also, a lot of deals did not happen in the past few quarters, as the promoters were not at ease with valuations.

According to Jacob Kurian, partner, New Silk Route, ���If the valuation props up to an extent, these promoters will look at transactions. However, I do not think there will be irrational exuberance on the side of private equity to do deals if valuations are going to soar beyond a point.���

There is a feeling that investment committees of PE funds may not want to be too aggressive. ���There is still a disconnect on valuations between promoter expectations and private equity. We expect this gap to narrow once earnings and growth forecasts are revised on the back of a new government��� says Agarwal.

Strategic investors may also look at deals a bit more closely, as the sentiment in the market has changed. Amit Singh, executive director, Avendus, said: ���Valuations are expected to firm up since the economy may be bottoming out. There are also strategic investors who wanted to do deals (read buyouts/acquisitions) but held back because they were not sure if valuations would drop further. I think they will hit the market again now.���