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PE fund 3i India shuts down buyout division

Private equity major 3i India has closed down its buyout division and merged the team with its infrastructure unit, because it sees greater investment opportunities in building roads, bridges and power stations than in taking over companies.

This mirrors a similar development in the firm’s Asian operations, where the buyout team was recently merged with the growth capital division. The head of 3i’s Asian buyout team, David Osborne left last month.

Saurabh Shah, the former head of the India buyout team, will now move to the infrastructure team along with Shrikant Bahadkar, taking the total team strength for infrastructure to ten.

“Our long term view is that buyout will be big in India, but at the moment there is no supply…no one is selling, so buyouts are scarce,” 3i Asia head Anil Ahuja, who is also in charge of the infrastructure unit, told ET. Infrastructure is one of the three focus areas for the listed private equity firm which has around $11 billion in assets; the other two are growth capital and buyouts.

While a lack of deals in the buyout space may have prompted 3i to change its strategy, the presence of an India-dedicated fund for infrastructure, with a size of around $1.2 billion could also have tilted the move in favour of trying to find opportunities in power, ports, roads and airports.

The government is offering tax incentives and other benefits for investment in infrastructure and has encouraged a number of public-private participation projects in sectors such as roads and ports.

The 3i India Infrastructure Fund typically invests between $50 million and $200 million in its portfolio companies. “On an average, our ticket size has been in excess of $100 million, we won’t be changing that,” said Mr Ahuja.

So far, 3i India has invested $161 million in Krishnapatnam Port and $227 million in Adani Power and is believed to be close to making an additional investment in the roads projects of Soma Enterprises. 3i has already invested $101 million in the Hyderabad-based Soma.

The closure of 3i India’s buyout unit is in line with similar developments globally. Late last year, UK buyout house Candover pulled out its Asian team after a review of its business. Similarly, Merrill Lynch Global Private Equity reportedly closed its Japan office in April after the firm found it difficult to get deals.

Buyouts, typically deals that involve takeover of an existing company by buying a controlling stake, are few in India as not many promoters are willing to sell. They are more keen on a minority stake sales to bring in funds while retaining management control.

3i is considered to be a leader in the European mid-market due to domain expertise, local knowledge, international connections and strong research. In 2006, 3i buyouts raised Eurofund V, which at e5 billion, was the largest fund in Europe for mid-market buyouts.

Source: Economic Times

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