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PE firms planning big-ticket investments in holding companies

PE firms planning big-ticket investments in holding companies
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First Published: Fri, May 14 2010. 12 27 AM IST

Graphic: Yogesh Kumar/Mint
Graphic: Yogesh Kumar/Mint
Updated: Fri, May 14 2010. 12 27 AM IST
Bangalore: Private equity (PE) firms are giving up their concerns about holding companies and planning some big-ticket investments in coming months, particularly in infrastructure and financial services sectors, investment bankers said.
There are at least half a dozen major deals in the market that could raise an estimated $600-800 million (around Rs2,700-3,600 crore) collectively, according to five investment bankers.
PE firms have traditionally been loath to back holding companies, who typically do not perform well on equity markets compared with standalone firms. But the listing of holding companies such as GVK Power and Infrastructure Ltd and GMR Infrastructure Ltd has made investors confident that they can easily exit from these firms.
Graphic: Yogesh Kumar/Mint
“A lot of deals are being evaluated and marketed. People are open to the idea of backing holding companies,” said K. Ramakrishnan, executive director and head of investment banking at Spark Capital Advisors (I) Pvt. Ltd.
“Investments could be as much as $200-300 million in an individual deal,” said Ramakrishnan, who is currently working on one such infrastructure deal. He declined to give details of the deal.
One of the big deals expected to close soon is Texas Pacific Group’s investment of Rs1,000 crore for a 20% stake in Shriram Capital, the holding company of the Chennai-based Shriram Group.
“It is in the process. It will take one-two months to conclude all the proceedings,” said R. Sridhar, managing director, Shriram Transport Finance Co. Ltd, one of its subsidiaries.
Holding companies are becoming more attractive for PE firms as there are only a few growth-stage companies that can absorb large equity capital infusions, said Jacob Kurian, partner, New Silk Route Advisors Pvt. Ltd.
Investing in holding companies is also a safer bet. Their diversified business means that the investment is spread over a range of activities, reducing the risk of loss, said Alok Gupta, managing director and chief executive, Axis Private Equity.
Sujay Kotak, associate vice-president of Singhi Advisors Ltd, said many Indian businesses are creating holding companies, particularly the ones that are keen on overseas acquisitions. “Forty percent of the deals that I am working on are holding companies,” he said.
“Increasingly, more and more holding companies are looking at raising capital as it gives promoters flexibility of where to put the money,” said Jacob Mathew, managing director and co-founder of the investment banking firm Mape Advisory Group.
Mape is working on two deals involving holding companies, of which one is a large infrastructure firm. “As market and economy shapes up, such deals would increase,” Mathew said, without giving details of the deals.
Another Mumbai-based investment banker has recently been asked by a family-run firm to structure its business and begin fund-raising talks. “It will be a big investment. It is too early to say anything more except that it’s an infra company,” he said, requesting anonymity.
Mumbai-based BTS Investment Advisors, which manages two funds for small and medium enterprises, is raising a $120 million clean technology fund.
“By the sheer nature of the clean tech industry, we feel we would end up doing more deals in holding companies than operating companies,” said managing partner K. Srinivasan.
But investors are also looking for synergy in the portfolios of holding companies.
“The firm has to have a structure which can allow comparisons with peers,” said Kurian. “In a much diversified conglomerate, it is typically difficult to find accurate comparisons in the equity market.”
deepti.c@livemint.com
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First Published: Fri, May 14 2010. 12 27 AM IST