Private equity funds need level playing field in India to grow

Although 2007 is likely to be another landmark year for private equity (PE) in India, the level of PE activity, currently estimated at around $10 billion, could increase and needs to increase multifold given India’s current GDP growth.

To achieve this, regulations and taxes need to improve and the PE community needs to project itself in the market that it is a source of finance that contributes to the growth plans of entrepreneurs, helps generate employment and improves corporate governance.

Having said this, PE financing is steadily gaining more acceptability amongst Indian promoters. This indicates a ‘leap of faith’ for closely-held traditional Indian family-owned and managed businesses, which until a few years ago, had viewed private equity financing as a possible interference in their business.

The recent investment by Blackstone in Bangalore-based garments company Gokaldas Exports demonstrates this leap of faith. Blackstone has acquired a controlling stake from the owners.

This transaction symbolises a traditional promoter-family run business partnering with a large private equity fund to accelerate its growth plans. This transaction demonstrates that Indian promoters are recognising the value that a PE brings to the partnership and PE investors are being viewed as ‘partners’ to the business.

In the backdrop of increasing competition for deals, some PE funds bring immediate value to Indian promoters at the negotiating table. For example, in the BPO industry, value is brought to the negotiating table by offering to introduce existing US or Europe-based investee companies who could be interested in offshoring, thereby providing an immediate growth opportunity to the Indian business.

Since 2002, PE inflows to India have witnessed a compounded annual growth rate of 67%. PE inflows during the first seven months of 2007 stood at $6 billion, which is already close to surpassing the $7.9 billion invested during the whole of 2006. However, what is more important for

PE is that the past two years have confirmed that the Indian market provides the liquidity to help PEs exit from their investments. Reports suggest that between January 2004 and June 2007, PE and venture capital funds exited 160 companies, 110 through sales and 50 through IPO.

(source: Economic Times)

Private equity firms invest record $3.8 bn in India

Global private equity firms, including Blackstone and Carlyle Group, have made an investment of $3.8 billion in 2007 so far in the country, up 50 per cent from the year-ago period.

The record volume has been reached through 81 M&A deals. Last year, foreign private equity players had invested $2.6 billion, data compiled by global consulting firm Dealogic showed.

Carlyle Group is the leading "financial sponsor" in India with investment of $777 million via two deals, including acquisition of over six per cent stake in HDFC.

It is followed by Dubai International Capital, which acquired a 2.87 per cent stake in ICICI Bank for $741 million, and Blackstone Group with $619 million inflow via eight deals.

Financial sponsor is a term commonly used to refer to private equity investment firms, particularly those engaged in leveraged buyout transactions.

Blackstone Group, the world's leading private equity firm, has acquired stake in companies such as Intelenet Global Services, Punj Lloyd and Gokaldas Exports.

The US-based Group has also decided to pump in $150 million to acquire a stake in Nagarjuna Construction Company. A move that comes close on the heels of its decision to acquire up to 70.1 per cent stake in Gokaldas Exports, the country's biggest apparel exporter, for about Rs 675 crore.

Blackstone Group manages around $90 billion of assets worldwide. In January, it invested about $275 million in Ushodaya Enterprises Ltd (UEL), a media and film production company owned by Ramoji Rao.

Source: (Economic Times)

Blackstone buys 50% in Gokaldas

Blackstone Group, among the world largest buyout firms, has accelerated its investments in India, pulling off on Monday its second buyout deal in less than three months by picking up a 50.1% stake in Gokaldas Exports Ltd, the country’s largest garments exporter, for $116 million or Rs482.5 crore, and setting aside another $49 million for an open tender mandated under local securities laws for an additional 20% of the target’s shares.

The holding of the promoters in Gokaldas Exports, the Bangalore-based Hinduja family (not related to the Hinduja Group) will come down from 70.1% to 20% before the open offer.

Blackstone said on Monday that it sees large opportunities in the garments outsourcing business and expects firms from its overseas portfolio and extended network to outsource manufacturing to a 400-acre so-called special economic zone that Gokaldas is setting up at Kanakapura outside Bangalore. “We are associated with a large network of retailers through our global portfolio of investments who may want to outsource to India,” said Akhil Gupta, managing director of Mumbai-based Blackstone Advisors India Pvt. Ltd.

Companies running operations from special economic zones or SEZs enjoy several incentives. The Gokaldas SEZ, expected to employ around 50,000 people, will house units of several garment manufacturers. The company will have a unit that will employ around 4,000 people in the SEZ.

“More companies will outsource (to) us,” said Rajendra Hinduja, managing director of Gokaldas Exports, referring to the benefits of the sale. “We will get access to textile companies in the US that have investments from Blackstone.” The names of such companies were not immediately available. Gokaldas earns more than 96% of its revenue from exports to global brands such as Tommy Hilfiger, Nike and Adidas, and to large retailers such as Walmart Inc. and Gap Inc.

Blackstone, which will pay Rs275 per share or a premium of 25% for the shares of Gokaldas, had initially prospected the Bangalore target as a ‘growth deal’ with the intention of acquiring a minority stake. Blackstone has invested $525 million, excluding Gokaldas, in India till date and intends on deploying $2 billion in the next two years.

(Source: Live Mint)