It seems the small fish is eating the big fish in the private equity industry in India. And why not, when there is more food for thought available for the small fry, thanks to the biggies that choose to ignore!
According to reports, private equity in India is a small deal market with the average deal size of a meager USD 26 million. Attractive deals in this market are too small for large global funds who ideally like to make big ticket investments in line with their large fund size. The growing demand for these small ticket transactions in the USD 100-400 million range is prompting top executives from large fund houses to quit and turn entrepreneurs.
A KPMG report states that the year 2010 saw the emergence of independent PE fund managers who bring their global expertise into the local arena. Several seasoned PE professionals left their jobs with PE institutions to go independent by setting up their own investment management business. This stems from the trust that most senior fund managers are able to individually raise amounts to the corpus size of small transactions (up to USD 400 million) by striking out on their own.
The report says that this trend is not new for an industry that is fast maturing, with examples like Wipro
of the IT/ITES industry spawn entrepreneurs. However, the trend also makes the PE industry unique due to the fact that it is less-than-a-decade old in the nation, states the report.
The trend rolled-in with Ajay Relan (ex-Citi Venture Capital International India head) and Renuka Ramnath (ex-ICICI Venture head) leaving their jobs to start CX Partners and Multiple Alternate Asset Management, respectively. CX Partners has risen about USD 515 million to provide growth equity capital to mid-market companies. Meanwhile, Multiples has raised USD 375 million and is looking at certain control transactions.
What this trend of going independent brings to the forefront is bettered understanding and quicker implementation of the investment decision process. Earlier, general partners (GPs) often complained that a lack of insight of the Indian environment has meant that some good deals have passed by. The investment committee consists mostly of the local GPs who are armed with knowledge of the business environment, thus quickening the investment process.
Also, limited partners (LPs) are now looking to back GPs with successful track records. With improved understanding of the PE market, more LPs are willing to back mid-sized funds that will focus on niche sectors and has better chances of delivering desired returns. GPs, at global institutions, see this need as an opportunity to raise funds independently. The focus is on opportunities exclusively in the mid-market companies, consumer driven business, small ticket deals or niches, says the KPMG report.
For example, Ranjeet Nabha, former MD and CEO of Indian operations of WL Ross & Co plans to start a special situations opportunities fund of around USD 250 million. Social venture fund Acumen India director Varun Sahni has started his own PE firm to specialise in critical services sector in emerging markets.
Vikram Utamsingh, head-PE of KPMG says that this emergence of a new breed of independent PE fund managers bodes well for the investors and the industry. Increasing mid-sized funds with niche themes would make PE capital more widely available in the markets in tier II, III and IV cities, he says.
That apart, the trend will establish more credibility among investors, who can now expect superior returns due to the fund