Swiss private equity investor Partners Group to bet up to $1 billion on India over 3-5 years

MUMBAI: At a time when the sheen around global emerging markets, especially the BRICS nations, has taken a serious beating, Swiss private equity investor Partners Group flew in half its global investment committee to India late January to meet promising entrepreneurs and back their compelling business ideas.

This is not a one-off show of commitment as Partners, one of the world’s largest backer of privately held companies, is looking to deploy up to a billion dollars in Indian market over the next three to five years, senior company executives said in an interview with ET.

“When we invest, we are not taking a macro call on the country so much as we are taking a micro call on the opportunity,” said Andre Frei, partner and co-chief executive. “India is a dynamic economy and it does not matter if it is slightly up or down for six months. We are taking a far longer-term view on the private market opportunities with an average five to six-year horizon.”
The firm is no stranger in this market, having backed several regional and local private equity and venture capital funds for over a decade as their investor, or limited partner (LP) in industry parlance. It decided to take a direct bet in the game since 2012, and followed it up by opening a dedicated India office two years later.

After deploying $800 million across three asset classes of private equity, real estate and infrastructure, Partners sees this as an opportune time to step up its PE practice. It has already made three investments so far, including a $270 million leveraged buyout of CSS Corp, a remote infrastructure management and technology support services firm, in 2013. In another undisclosed growth capital transaction, Partners picked up a minority stake in education company Eurokids.

“We want to find two-three good opportunities every year and we believe they are not difficult to find,” said Manas Tandon, India head for Partners Group, in his first media interaction since taking charge in July last year.

But even then, industry experts feel that compared with many of its bulge-bracket peers, the investment firm that manages $50 billion of assets has chosen to hold back in India, shying away from frothy valuations and quick diligences driven by a hyper-competitive PE market.

"We always try to find the right relative value for our investors. So, a lot of things have to come together including the business, the sector, the entrepreneur and the business case," said Tandon. “Ultimately it's a matter of selectivity and we will continue to remain prudent about our choices. The journey of PE in India to-date has not been smooth, it has been relatively sobering at times. So we have also been very prudent about valuations, which to us are a function of governance, growth prospects and market dynamics," he explained.

The gap in valuation multiples for Indian companies in relation to most global peers with comparable growth “has narrowed now”, said Tandon, even if high-quality businesses still trade at “very rich multiples”.

The fuzzy path to profitability is also making the team resist backing local consumer Internet companies that have seen frenzied investor interest of late, even though in Tandon's own words, he remained an avid ecommerce consumer. "We will not invest in companies where the unit economics are not very clear. We like to invest in steady businesses, even though they may not yet be profitable at the time of investment."

Going ahead, the plan is to evaluate a mix of minority growth investments and control transactions in sectors such as consumer, financial services, healthcare, business services and technology. Even in minority deals, the preference clearly is for substantial stakes with significant rights, board representation and the ability to shape strategy of the company. It will largely be a mid-market play with a $65-200 million sweet spot per transaction.

“Good quality companies would get multiple suitors and we are not scared of competition. The market is deep enough and it is never a zero-sum game,” said Frei, the co-chief executive, while admitting that too much capital was still chasing too few bankable opportunities.

Within the broad financial services spectrum, the India team has been spending a lot of time scouting for opportunities in the housing finance sector and has been involved in at least two sale processes, either on their own or with co-investors. Tandon puts it as one of the stronger macro themes that will pan out considering the low penetration of the market. In healthcare, too, the hunt is broad based, from hospital chains to diagnostic centres, medical devices and even pure play, young pharma companies with sizeable overseas earnings.

“In all of these sectors, we are looking for high-quality growth companies, whether the growth is derived from domestic consumption or from exports,” said Tandon.

Partners Group is also looking at secondary purchase of LP commitments, but such deals globally are a bit complicated to complete. Even secondary trades between funds are gaining traction as funds of older vintages proactively seek exits. “While the IPO market has been choppy, companies that have gone past the finish line are trading at rich multiples – e.g., Dr Lal's and Narayana. This incentivizes many funds to hold on to their positions and wait for a public market exit. Having said that, we do see a lot more sponsor-to-sponsor sale processes than we have in the recent past,” Tandon said.