Private equity investors are providing money for Indian companies to grow but have their eye on starting complete buyouts once the legislative environment changes, according to a survey by Deloitte Corporate Finance Services India Pvt. Ltd.
Say Sandeep Gill, managing director of the firm: “Without a doubt everybody says, ‘yes there will be buyouts in the future’ as the market matures, and businesses and their growth curves start flattening out to a mature stage and cash flows are stable.”
In a telephonic survey of 60 global and domestic private equity firms in India, 78% said that there would be pure buyouts, but 22% qualified that by saying not in the near term. But all respondents said that this climate is more than six months off. The Deloitte team said this shift is about two to three years away, and would happen in the more established sectors, such as information technology, first.
Private equity houses said in the survey that government control around debt and legal issues are the hurdles for full buyouts, according to Gill. And secondly, Indian entrepreneurs, particularly in family-owned business, want to expand without giving up ownership.
When private equity firms were asked what types of transactions in the Indian market would be the most popular over the next six months, 88% said it would continue to be development capital, or minority stake investment, to fuel growth.
Some 19% said the most popular transaction would the selling of publicly traded shares (called PIPE deals), while 16% said it would be investment in companies about to have an initial public offering. Some 3% said it would be private equity real estate.