PE firms fuels India's global expansion

NEW DELHI: When Kohlberg Kravis Roberts & Company made a $50-billion bid last month for the French entertainment and telecommunications company, Vivendi, it wasn’t just about an acquisition. It was, in fact, a sign of increasing firepower of private equity.

According to reports in the global press, even as the bid marks the largest leveraged buyout offer in history, it, more importantly, demonstrates the growing prowess of private equity on the global stage.

India too is joining the bandwagon, with private equity firms fuelling corporate India’s appetite for global acquisitions. In fact, the leit motif in some notable global acquisitions by Indian companies last year was that each of them was either PE or VC backed.

The year saw companies such as Appals, Praj Industries, Four Soft, Spentex, Welspun, Punj Lloyd, and Suzlon make a global quest. Notably, for most of them, it was a first attempt at a global footprint. And this foray was made smoother by PE players.

Investment banking sources confirm that there are at least 10-15 deals in the offing wherein the PE firms are actively involved in scouting global acquisitions for their investee companies. And, some private equity firms are also gearing up to fund these global acquisitions.

Take Kotak Private Equity, for instance. It funded investee company Four Soft’s recent acquisition of FWK Technologies in the UK and the firm is still on a lookout for more acquisitions in this space. “We are funding the acquisition opportunities for our investee companies, to take their growth trajectory to the next level. It is one of the differentiators that we bring to the table,” says Nitin Deshmukh, CEO, Kotak Private Equity.

The PE firm is also helping a drug discovery company and a couple of biotech companies in its portfolio to acquire companies globally. Experts say that for PE firms which want to maximise their returns in a limited time, it’s an easy way to bulk up the investee companies and as a corollary, increase the multiples for a favourable exit.

So in some cases, they are taking an active interest in scouting deals using their global networks, and then handholding the company throughout the deal. “We help companies at the board level not only in identifying the right areas but also to introduce them to correct intermediaries and help them with their due diligence,” says Ashish Dhawan, co-founder and senior MD, Chrys Capital who assisted Suzlon in its acquisition of Hansen.

Global acquisitions are the way forward for many of these mid-rung firms. “After the companies have captured the domestic market, a global play is the next logical move for companies to create value, hence PE players are also keen on these global acquisitions,” says Sanjeev Krishan, executive director, PricewaterhouseCoopers.

Each acquisition fulfills a certain gap. While some fill gaps in skill sets, others act as a beachhead in a new market. Investment bankers also say that in some cases, the reluctant global VC and PE firms are being forced by the entrepreneurs to help them look for acquisitions abroad.

“The funds don’t want to put money back into developed countries again, as the Indian domestic market gives them a natural hedge. But the Indian entrepreneur will now go ahead with a global acquisition anyway. So sometimes, these funds have no choice but to fund acquisitions,” says Mr Krishnan. But clearly, PE-led M&A is here to stay.