Mumbai: Global private equity (PE) giant Carlyle Group, which has $88.6 billion (Rs3.9 trillion) in management worldwide, on Tuesday said it has closed its third Asia buyout fund, Carlyle Asia Partners III (CAP III), with a corpus of $2.55 billion. Close to one-third of that will be invested in India, a senior Carlyle official said.
“There is no fixed allocation but if you go by the size of the economy and the absorption capacity, I do think that approximately one-third will come into India,” said Rajeev Gupta, managing director, Carlyle India Advisors Pvt. Ltd.
Indeed, India and China account for a lion’s share of Asian funds. According to Arun Natarajan, chief executive of research service firm Venture Intelligence, the two countries have an allocation of between 60% and 80% within Asian funds.
Deal appetite: A file photo of Carlyle India Advisors managing director Rajeev Gupta at a mall in Mumbai. He said the closing of CAP III was an “important milestone for Carlyle in India”. Umesh Goswami / www.indiatodayimages.com
“However, buyout deals account for less than 5% of the total PE investments in India both in terms of value as well as number of deals,” he pointed out, adding that buyout funds are tweaking their strategy to pick up minority stakes instead of controlling ones.
In a media statement, Gupta said the closing of CAP III was an “important milestone for Carlyle in India” as its previous edition had made one of the largest PE investments in the country when it injected $650 million for a 5.6% stake in mortgage lender Housing Development Finance Corp. Ltd (HDFC) in 2007.
“Ultimately, you have to invest a certain amount of dollars, so you can either invest $100 million in six transactions or $600 million in one. If the quality of the deal is good, you are much better off putting money in a leading business,” Gupta said in a telephone interview on Tuesday. “Also, no compromise can be made on returns because we are in the business of providing returns to the investor,” Gupta added.
However, he clarified that while the fund is sector agnostic, it would stay away from some areas. “We don’t do real estate and we do not do sin, so we don’t do liquor,” he said.
Buyout funds, meanwhile, continue to look for big deals.
According to Bimal Tanna, executive director (transaction services) at audit firm PricewaterhouseCoopers, the pace of activity in the buyout space has improved after the recent economic downturn.
“Many promoters who have been badly affected by the downturn have become risk averse and are trying to cash out, so buyout opportunities do exist in the market,” he said. That is also what Carlyle is after. “Our bigger priority is to work with better managements and to have higher percentage of ownership,” said Gupta. “We have an appetite to do large deals. So the idea is going to be to invest in large transactions,” he said.
However, as fund-raising for big global funds has become easier, smaller regional players are feeling the pinch.
“The fund-raising is getting confined to well-known brand names only, while the regional, lesser known funds are finding it very difficult,” said Gupta. “So in a sense there has been a consolidation in this space.”
According to data from Venture Intelligence, fund-raising has declined from 23 funds raising $5,150 million in 2008 to 16 funds raising $3,771 million in 2009. There are about 40 funds in India that are currently looking for capital, according to industry estimates.