BackPE firms target growth sectors via holding firms
PE firms target growth sectors via holding firms
PremiumMultiple options: New Silk Route’s founding general partner and chief executive Parag Saxena. The firm has set aside $100 million to invest in Indian F&B firms as part of its so-called Project Gas
Private equity (PE) firms in India are increasingly looking to create holding companies to invest in high-growth sectors such as food and beverage (F&B), agriculture, education and clean-tech.
A holding company is typically created to own stakes in other companies, especially by corporate groups running multiple and varied businesses.
The revenue of the holding companies is expected to be larger than that of the stand-alone firms in its portfolio, making them more attractive in initial public offerings (IPOs) of shares—the most preferred option for PE firms to sell their investments.
Everstone Capital Advisors has created Cuisine Asia—a Mauritius-based holding company for its restaurant business.
Last year, Everstone invested in New Delhi-based restaurant chain Pind Balluchi.
Both these companies are parts of Cuisine Asia.
“We do platform investments when we see a right mix of a large market opportunity, the ability to scale the business within a relatively short period of three-five years, and a very high-quality management team which can build the business and scale it up," said Dhanpal Jhaveri, partner and chief executive of Everstone.
Holding companies created by PE firms hold majority stakes in the portfolio companies, which typically belong to one field or sector, allowing them to earn revenue from the subsidiaries.
Asia-focused PE firm New Silk Route (NSR) is developing a holding company to invest in food and beverage companies.
It has set aside $100 million to invest in Indian F&B firms as part of its so-called Project Gastronomy. It recently invested in Bangalore-based Vasudev Adiga’s Fast Food Ltd for an undisclosed sum.
“It’s about having belief in a sector. Jubilant FoodWorks Ltd has multiple brands under it. So has Yum! Brands Inc.," said Parag Saxena, founding general partner and chief executive of New Silk Route.
Jubilant FoodWorks owns the exclusive franchise rights for Domino’s Pizza in India. It also has a master franchise agreement with US-based coffee chain Dunkin’ Donuts.
The promoters of HT Media Ltd, which publishes the Hindustan Times and Mint, and Jubilant are closely related. There are no promoter crossholdings
The first Dunkin’ Donuts store in India opened recently in Connaught Place in New Delhi. Yum! operates or licenses Taco Bell, KFC, Pizza Hut, and WingStreet restaurants worldwide.
The strategy of having multiple brands under one platform has worked for Jubilant and Yum!, he said. “It shows the market is willing to accept such companies, and that, perhaps, we should also pursue this strategy."
Besides, he said, a holding company is also an attractive target for acquisitions—another favourite option for PE firms looking to sell their investments. But the big challenge in India is that there are few companies available that have scale, Saxena said.
Other than F&B, Saxena said medical devices firms, too, are appropriate for the holding company structure because of their quick pace of growth.
Amit Chander, partner, Baring Private Equity Partners India Pvt. Ltd, said information technology (IT) companies have a potential for consolidation, which is to say that large or mid-size IT companies acquired by PE firms can function as holding companies for smaller IT and related firms.
“The balance sheets of IT companies are often flush with cash, and PE firms can manage them well," Chander said, without disclosing if Baring is creating holding companies for its portfolio firms.
“The single biggest reason for such an initiative is that while we have high fundamental growth segments like F&B and agri, education, healthcare, NBFCs (non-banking financial companies) and clean-tech, there are not many large companies available that can interest PEs," said Mayank Rastogi, partner, private equity and transaction advisory services at Ernst and Young.
deepti.c@livemint.com
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