Bangalore / Mumbai: Late in 2009, India’s third largest mobile phone maker, Micromax Informatics Ltd, was scouting hard for investors, but found itself rejecting the several foreign firms that offered to back it.
The Gurgaon-headquartered company was clear about the kind of investor it wanted for a partner—a firm with a committed base in India and a global network it could leverage for overseas expansion.
Micromax was growing at 10 times a year and “we needed a partner who could see and gauge how the success is happening (rather) than a foreign one with unnecessary questions that crop up if they are not based here”, said business director Vikas Jain.
Partly in response to such demands and for advantages they wouldn’t otherwise have, about half a dozen global investors have set up shop or are opening offices in the country, once again interested in India’s growth story.
The economic downturn had dampened investor enthusiasm and several global firms that had opened offices in India decided to exit, leaving local firms starved for funds.
Micromax finally found its ideal investor in US-based TA Associates Inc., a private equity PE) firm with a portfolio of nearly 400 companies. TA had just opened its office in India.
“It makes a world of difference to be on the ground,” said Naveen Wadhera, director of TA Associates Advisory Pvt. Ltd. “In an emerging market, changes, trends are extremely particular to the region. Sitting in London, we could not have come across a local handset maker.”
On 12 January, TA had announced an investment of $45 million (around Rs200 crore today) in Micromax—its first in India since opening an office in Mumbai. In 2006, it had invested in telecom operator Idea Cellular Ltd.
Investors say India’s combination of public market liquidity, exits options, a large English-speaking population and secular growth trends are definite attractions.
“Many of our LPs (limited partners) have been looking at India as a place to invest and have been supportive of our plans to invest here,” said Bruce Evans, managing director and head of Summit Partners’ India and China teams. LPs are the main investors in PE firms.
Summit, which manages funds of about $11 billion and has offices in Boston, London and Palo Alto, plans to move its five-member India team to the country from London in early 2011. Evans said Summit will invest $10-100 million in Indian firms, focusing on the technology, healthcare, consumer and finance sectors.
Investors are also keen on firms that cater to emerging markets similar to India.
“In the past, the West has invested in India in companies like Infosys (Technologies Ltd), which then grew and entered the West. But now, people are investing in companies in the East to grow and enter other markets in the East,” said Venky Ganesan, managing director of Globespan Capital Partners, which invested $12 million in SMS GupShup, a mobile group SMS service platform, a few days ago.
SMS GupShup wants to use the money to expand overseas, starting with emerging markets that have a high mobile phone adoption. Ganesan did not say if Globespan would set up an office in India.
It’s also easier for PE firms to make deals if they have well-connected people with a local understanding, say experts.
It’s a lot about deal access, said Vikram Utamsingh, executive director of audit and consulting firm KPMG India. “These firms need to have well-networked, well-known people with good relations with corporates.”