JP Morgan emerges frontrunner in race to buy Canaan's domestic portfolio for over $200 million

MUMBAI: JP Morgan Asset Management has emerged the frontrunner to buy early stage investor Canaan Partners’ domestic portfolio for more than $200 million (Rs 1,200 crore), which, if the deal pans out, would be the largest secondary portfolio sale in India’s private equity and venture capital market.

At least three other investment firms including Delhi-based Madison India Capital have also submitted bids to buy Canaan’s India portfolio, three people with direct knowledge of the developments told ET, adding that the JP Morgan unit was most likely to clinch the deal.

“The bid that they put in was a few percentage points on the net asset value of the portfolio and that’s how they got the deal,” said a person whose firm had shown interest in the portfolio, declining to be identified.

Avneet Kochar, regional adviser for private equity at JP Morgan Asset Management and who is leading the deal discussions for the fund house, has met the founders of Canaan’s portfolio companies, said the chief executive of one of these firms, speaking on condition of anonymity.
Silicon Valley-headquartered Canaan has invested $160-170 million in more than 15 companies in India since 2005, including in Matrimony-.com, CarTrade, Naaptol, Happiest Minds Technologies, Iyogi and Equitas Holdings, but ceased operations in the country late last year and decided to sell its domestic portfolio. It has written off investments in two firms: referral recruitment firm techTribe and interactive media firm Cellcast.

"The deal is in advanced stages of discussion. It is being done by one of their (Canaan’s) US-based limited partners," one of the three people privy to the developments said. LP denotes an investor in a private equity fund and may be a public pension trust, corporate or academic endowments and specialist fund-of-funds.

The deal, in the works for nearly a year, will see the buyer take over Canaan’s stakes in multiple portfolio companies. “Details with respect to whether the sale will involve all 13 companies are still being worked out,” said a second person with direct knowledge of developments.

Alok Mittal, managing director at Canaan Partners India, could not be reached for comments. Executives at the firm’s Menlo Park, California office did not respond to email queries from ET. JP Morgan’s Kochar did not reply to emails sent by ET. "It is against our policy to comment on any specific transaction and whether we are aware of it or not," Surya Chadha, senior managing director at Madison, said in an email response.

Email queries sent to Canaan’s portfolio companies, including Bangalore-based Happiest Minds and Gurgaon-based iYogi, did not elicit responses till the time of going to print. “We have not received any official intimation yet of a change in shareholding,” said Vasudevan PN, managing director of Equitas Holdings.

Canaan’s new global venture capital fund mopped up $675 million in October. The firm’s India team hoped for a strong allocation for the country from the fund, but given lack of exits from domestic investments and a stronger market in the US, Canaan was not convinced, said another person familiar with the matter.

Canaan's India team, led by Alok Mittal and Rahul Khanna, considered raising an India fund. But Khanna decided to launch a venture debt fund, Trifecta Capital, and Mittal is now launching a startup. Khanna and Mittal are not likely to be involved with Canaan’s portfolio companies in future, and JP Morgan would hire ateam or work with a VC firm to manage the portfolio, said a VC investor.

Another issue with the secondary sale deal is the constantly changing value of Canaan’s portfolio, as several companies such as CarTrade are raising a new round while Matrimony and UnitedLex are considered IPO candidates.