June 2011
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Club deals dominate Indian PE space

Club deals, where a consortium of private equity investors get together for a deal to make money, are growing but with a difference. The big-ticket deals are giving way to more ‘growth stage’ transactions.

An example of the former is the recent $1-billion investment in Bharti Infratel Ltd by a consortium of private equity investors — Temasek Holdings Pte Ltd, Goldman Sachs, The Investment Corp. of Dubai, Macquarie Group Ltd, Citigroup, AIF Capital and India Equity Partners. It was one of the largest PE investments in India. Such big transactions marked club deals earlier. However, 2011 has witnessed many more club deals under the $100-million (Rs 450 crore) category. Of the 222 deals worth $5.1 billion in 2011 so far, 63 deals worth almost $2.5 bn took place in a co-investment way. Interestingly, out of 63 deals, 53 were below $100 mn in size. These deals cumulated to $968 mn, according to data from VCCedge.

Niren Shah, managing director, Norwest Venture Partners, said, “It’s important for a company to have a strong consortium of investors who are able to adequately meet the company’s future financing needs, especially during adverse market conditions. To this extent, we are very conscious of ensuring that we partner with high quality investors and that the consortium has adequate reserves to fund subsequent rounds of the investee company.”

Last year, 64 club deals worth $1.1 bn took place under the $100-mn range, of 80 club deals worth $2.7 bn in all. In all, there were 391 PE/VC deals worth $8.1 billion in India.

Rahul Bhasin, managing partner of Baring Private Equity Partners, said, “Each VC/PE fund has its own specialised area of expertise. The company's expansion will be better if the value is added in all areas of operations.”

A $98-mn investment in Magma Corp by IFC and KKR, $90-mn investment in MedPlus Health by TVS Capital, Mount Kellett and India Venture Advisors, $64-mn investment by Wolfensohn, Multiples PE and Customers Bancorp, and Yatra Online's $45-mn fundraising from Intel Capital and Norwest Venture Partners are some of the large transactions in 2011 till date.

A $200-mn investment in GMR Airports and a $163-mn investment in Ratnakar bank by seven investors, including Beacon India, Gaja Capital, Norwest and HDFC, are other major club deals in 2011.

Kaushik Sen, CEO and co-founder, Wellspring Healthcare, which raised Rs 20 crore from a consortium of Catamaran Ventures, Reliance Venture Asset Management and US-based BlueCross BlueShield, said, “The biggest advantage is the value addition to the start-up companies. Also, the presence of known investors will increase the possibility for easy fundraising at the next level.”

A partner at a Mumbai-based law firm said, “The general partners (fund managers) face pressure from global investors for reducing the risk of investments and prefer their money to be deployed in a co-investment manner.”

A CEO at an I-Banking firm said, “The promoters prefer to apply a ‘divide& rule’ policy, adding more investors on the board than being dominated by one investor.”

However, a few investors opine that the possibility of a clash among the promoters and PE investors would be more if more investors come on board of the portfolio company, citing the example of Rajiv Chandrasekhar, who controlled BPL Mobile Group.

It had sold 38 per cent stake to foreign PE investors, including AIG, Actis, ADB and Nomura-TVG.

In 2004, BPL Mobile had filed a case against Actis and AIG, citing failure of fiduciary responsibilities and demanding compensation of $500 mn, later settled out-of-court.

Source: Business Standard

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