When IDFC Private Equity, India’s largest private equity (PE) investor in infrastructure, failed to find a suitable company in renewable energy, it started its own outfit called Green Infra Ltd.

Graphics: Sandeep Bhatnagar / Mint

“This company can become of a size and scale where it can go public," says Raja Parthasarathy, managing director of IDFC PE.

With the maturing of the Indian PE market, consolidation moves are gaining ground. The aggregation or roll-up model—basically, amassing capacities in a fragmented market—allows companies to reach considerable size and lends itself to a viable exit for investors.

There are now many others in the renewable energy space, such as Auro Mira Energy Co. Pvt. Ltd, Orient Green Power Co. Ltd and Shalivahana Green Energy Ltd, all backed by PE firms, looking to build a portfolio of 250-500MW in three-five years.

Last year, Olympus Capital invested $35 million in Orient, also backed by PE firm Bessemer Venture Partners and Shriram EPC.

Earlier this month, Indian Energy, which plans to buy wind power assets across the country, was listed on London’s Alternative Investment Market, raising Rs78 crore. There is also Azure Power India Pvt. Ltd, focused on solar energy, which got funding from Helion Venture Partners and Foundation Capital.

Consolidation is also taking place in healthcare. Dominated by a handful of companies such as Apollo Hospitals Enterprise Ltd, Fortis Healthcare Ltd and Max Healthcare, this sector has seen consolidation plays, pioneered by Iven Medicare, ICICI Ventures’ hospital aggregator.

Then there is Piramal group’s India Venture Advisors, Milestone Religare Fund and the New York-based private investment firm GTI group. In fact, GTI has set up a day-care surgery chain, Nova Medical Centers India, and will invest around $50-60 million in the country.

“Healthcare is our key focus at this point of time. Our entire theme is built on the fact that there will be consolidation," says Ajay Nair, senior associate at Sabre Capital. The PE firm has set up Spring Healthcare Ltd, which aims to build a portfolio of hospitals, contract research organizations and diagnostic chains.

“Consolidation is a theme that PEs like, as it helps them deploy capital and achieve scale. Obviously, it has to be in an industry where scale has advantages," says Gaurav Malik, managing director of Olympus Capital Holdings Asia. The PE firm has backed Orient, which is aggregating renewable energy assets, and is also an investor in the BPO firm Quattro, which also has a consolidation strategy.

These PE-backed firms also have an aggressive inorganic strategy, which is core to the roll-up model.

This strategy helps companies scale up in four or five years, after which they can be sold either through a strategic sale or go for a listing. And by acquiring smaller assets and combining them, PE firms manage to get better returns, rather than negotiating a deal with a larger company.

But the market is not witnessing too many mergers and acquisitions yet. PE firms believe that domestic and international companies will look at these companies in the next four-five years.

Consolidation plays are not completely new to India. One of the most prominent roll-ups in the country was Centurion Bank of Punjab Ltd, which was formed by a combination of Centurion Bank Ltd, Bank of Punjab Ltd and Lord Krishna Bank Ltd.

Sabre Capital led the investor group and made a 103% internal rate of return on its investment when Centurion Bank of Punjab was sold to HDFC Bank Ltd.

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