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‘Buyouts will be the exception in the near term rather than the  norm’

‘Buyouts will be the exception in the near term rather than the  norm’
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First Published: Tue, Aug 07 2007. 12 09 AM IST
Updated: Tue, Aug 07 2007. 12 09 AM IST
Providence Equity Partners LLC managing director Biswajit A. Subramanian will relocate to Delhi in a few weeks to take charge of the Rhode Island-headquartered private equity investor’s India operations. Providence is one of North America’s Top 10 leveraged buyout firms and specializes in the media, communications and information technology sectors. Subramanian will move from his current base in London where he joined in 2000. The Delhi office was set up this January but the firm closed its first deal here in November last year with a stake in Mumbai-based IDEA Cellular Ltd. Providence has about $21 billion (Rs85,050 crore) of equity capital under management, and $12 billion of that comes from its sixth and latest fund that was closed this year. In India, the firm will initially invest in growth companies with a view on buyout deals in the long term. Subramanian spoke to Mint about why the firm’s specialized sector focus has brought them to India now. Edited excerpts:
Why did you decide to set up an office in India now?
We have been evaluating our strategy in general for the last couple of years and thought about where it made sense for us to expand in the world.
We originally started investing in the US and expanded to Europe in the late nineties. We opened a European office in 2000. After about a year of thinking about it, we concluded that Asia was the place to be in. We approached the Asian market by opening two offices, one each in Hong Kong andIndia.
The reason we felt comfortable about this being the right time to be in India was, we found that the sectors we specialize in globally—communications, media, entertainment and information—are going through a rapid growth phase and obviously the country is also growing very nicely.
The quality of companies that we met also helped us to decide that this was the right time to set up an operation here.
It (India) is strategically very important to us and we’ve come in with a long-term view.
You have a big focus on buyouts in your traditional markets. Will buyouts dominate your investment strategy here?
If you look at Providence’s history, from the time when we were established in 1989 to date, it is not true that we have done only buyouts.
In the early nineties it was small, buyout-type deals. In the mid to late nineties we did a lot of growth capital deals and then again, based on where the opportunity was, starting 2000-2001 in North America and Western Europe, it was all buyout deals. So, we do deals starting from growth capital all the way to buyouts, minority investments and PIPEs (private investment in public enterprise).
So, when we come to India, it is not that we are looking to do only buyouts. We will do all types, depending on the opportunities available. Down the road, as the market develops there will be buyout opportunities and we will obviously look at them as well.
You have raised a $12 billion global fund recently. How will that impact potential deal sizes and investment criteria here?
First of all, since it is a global fund managed by a global management team, the investment criteria will be the same across the world.
The investment criterion would be the right level of return we would seek for the right amount of risk. Within that investment criterion, we will be flexible in terms of what each market presents in terms of opportunity.
Because of the big fund size that we have raised in Western markets, we can do significantly big deals and a lot of them on our own. But when it comes to Asia, not just India, we will do smaller deals based on what the market presents.
Is Idea Cellular your first and only deal here so far? Why did you pick this deal as your first?
Yes, so far it is our only deal. We set up office only this year, and were fortunate enough to do a deal before we set up operations. The reason we did Idea is that within our sectors of specialization, mobile has always been a good investment area for us. For instance, we were the founding investors in Western Wireless and Voicestream, which was sold to Deutsche Telekom a few years ago.
When we started looking at India about 18-24 months ago, this was one of the companies that came up as a potential investment area, and there was a deal to be done given the shareholder dynamics that were going on with respect to this particular company.
How do you assess the opportunities here in your sectors of specialization?
Telecom is a sector that is core to us. We have one investment already and we will obviously not do deals that are in conflict with that investment, but other than that we will evaluate all opportunities that present themselves.
There has been a lot of PE (private equity) investment in the IT services space in the last few years. We will look at companies whose business models move forward from application development or project development to the managed services model.
Also, within India itself, when we say information, it goes beyond IT, but companies using information to provide services such as business services, knowledge processing or market research type companies could be opportunities for us. We’re also bullish on media. Any sub-sector you look at within media, such as newspapers, satellite television or radio, they are all growing driven by economic growth.
Do you think the Indian market is ready for buyouts?
For buyouts to happen, certain things need to happen. One, there must be people willing to sell businesses. At the moment, because everyone is at the growth phase, I don’t think there are a lot of businesses available for sale. So, buyouts will be the exception in the near term rather than the norm.
How do you assess the quality and nature of Indian entrepreneurs and management teams?
The quality of the companies and the management that I have seen has consistently been very good which is very encouraging if you are going to invest in companies for their growth.
Sometimes I find that things take longer than it would take in the Western world, for instance, to get deals done. The gestation period, execution period is typically far longer than developed countries.
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First Published: Tue, Aug 07 2007. 12 09 AM IST