BackVolatility will create more PE funding opportunity: Blackstone's Amit Dixit
The market turmoil presents a good long-term opportunity, says Blackstone India head Amit DixitPrivate equity firms are increasingly playing role of consolidating industries in M&A deals
PremiumMumbai: Ongoing volatility in the Indian markets, both public and private, will create a wide variety of opportunities for private equity investments, said Amit Dixit, senior managing director and head of Indian private equity at Blackstone, the world’s largest manager of alternative assets.
“We are long-term patient investors in India. We view this volatility as somewhat short term and we see this volatility as a good opportunity. My view is, 2019 will be an excellent vintage for private equity investments. If you don’t get caught up in these short-term issues and you just step back and take a 10-year view, I think, this will present a very good opportunity for the industry," Dixit said at the Mint India Investment Summit 2019 in Mumbai on Friday.
The country has witnessed unprecedented volatility over the last six to nine months, he said, something not seen in a long period of time.
“Lot of the IPOs have got delayed. Smallcap stocks have corrected by 25% from the peak, midcaps have corrected by similar levels. Currency is down 10%. In the private markets, you have the NBFC (non-banking financial companies) crisis, which actually has deepened in multiple areas and which led to a bit of mutual fund crisis," said Dixit.
This volatility will throw up private equity opportunities, capital solutions opportunities and distressed opportunities, he said.
Blackstone recently acquired a controlling stake in affordable home financier, Aadhar Housing Finance, which was put up for sale by its parent group owing to balance sheet distress due to the liquidity crisis in the NBFC sector.
Last year, it acquired control of asset reconstruction firm International Asset Reconstruction Co. and has committed $200 million to buy non-performing loans.
Dixit added that apart from the opportunities presented by the volatile environment, several other themes will also drive PE investments, such as PE investors increasingly playing the role of business builders as opposed to financial investors and also playing the role of industry consolidators.
“You are increasingly seeing private equity as a quasi-strategic, a business builder and not just a financial investor. The thought process is when you go into a company, you are not looking at the company as a financial investor, you are looking at the company as a long owner, as a business builder and you are thinking of how do you take this company from point A to point B," said Dixit.
Dixit added that Blackstone has helped several of its portfolio companies in critical functions such as hiring talent and has helped hire over 60 C-level executives and over 40 directors.
The PE firm has also helped its companies by providing customers.
“We have delivered around 20 customers from our global Blackstone portfolio to our India IT businesses—Mphasis, IBS Software and Intelenet (Blackstone exited Intelenet in 2018), TaskUs," he said.
PE firms are increasingly playing the larger role of consolidating industries in mergers and acquisitions.
“We call it a buy and build strategy. The idea is you buy a company in a sector and use that as a platform and have an acquisition theme around it," said Dixit.
“India has many small scale companies which lack access to talent, to capital access, to good board members and as a result, these companies don’t trade at good multiples," he added.
If you can execute industry consolidation, you can not only derive revenue and cost synergies, but also a multiple arbitrage, because larger companies trade at a premium to small companies, he added.
Blackstone too has been focusing on this trend. In 2018, it acquired Chennai-based auto-component maker Comstar and has been scaling that up through acquisitions.
“We are doing this buy and build strategy in autocomp where we took control of Comstar, with multiple global customers and about $30 million of Ebitda (earnings before interest, tax, depreciation and amortization). We then did a merger of equals and now Comstar is already a $60 million Ebitda platform with this merger," he said.
Dixit added that the Indian PE industry has significantly matured over the last few years, especially on the exits front.
Blackstone itself has seen exits worth $2 billion in the last couple of years, he said.
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