- Healthcare delivery,
- Food and Agriculture,
- Clean Technology that addresses basic needs,
- Selective parts of education and skills development,
- Services and products for semi-urban and rural markets
- Infrastructure in specific sections supported by the government and addressing
Name the sectors that you will not look at investing in 2009
- Consumer Internet/ Web 2.0 (people will stop paying for eye balls)
- Off-shoring KPO/ BPO (scalability issues/ increasing costs/ less differentiation)
- Pre Revenue Businesses that have high consumer acquisition costs and longer break even periods (e.g.: online travel/ hospitality industry)
Is there a change in the way you evaluate an investment proposal? Will it take longer for you to close a deal than compared to what you did it at a boom time like late 2006 or 2007?
The way we evaluate the investment proposal is exactly the same as before. Before, we were not too concerned about the company being within two years of an IPO, neither are we now.
Do you see more funds coming in to the market?
Yes more funds will come into the market, but investment will be lower than the period prior to September 2008. Statistics show that US based LPs account for ~70% of Indian PE Industry. With credit crisis, recession and market meltdown most US LPs are faced with significant asset erosion and the pool of funds available is contracting.
Do you foresee distressed asset sale?
Distressed asset sale is likely to increase in a number of areas but perhaps still too complicated in the Indian context. If it is the secondary sale of an LP’s PE fund holding that’s pretty straight forward. But real estate assets backed by banks, businesses with assets and operations, these kind are likely to have many stake holders and regulatororily complex to resolve.
Do you see more buyouts (controlled transactions) in 2009?
Probably not. Buyouts are driven by (a) availability of leverage (b) management difference with shareholder or promoter’s willingness to cede control.
- Availability of debt to finance buyouts is still scarce in India
- Indian Cos. are largely promoter driven where the promoter is both the shareholder and the management – more often than not promoters are against ceding control
Based on the above hypothesis, we may not see more buyouts.
Do you see an increase in PE-backed acquisitions?
Yes. Companies that have built competitive advantages, and will find this a great time to grow by acquisition. While debt will be available, PE funding will be required to get leverage.