The Rise of Private Equity-buy, manage and sell !

Buy, manage and sell: the current motto of the private equity industry. Well, the private equity firms are in their buying spree and have been foraying far out from their land of origin to the high growth emerging markets, mostly spanning the Indo-Sino-Pacific region and the BRICS nations. Private equities (PE) and their cousins, Venture capitals (VC) are targeting the highest returns on their investments through their funding schemes to the needy corporate sectors and start-up entrepreneurs. Private Equities are mainly providing growth capitals and buyout capitals, which means they are infusing liquidity, taking over the management, turning around the company and then selling it off. Usually PE investments in companies are locked in for about 4-5 years before their exit. There are various exit strategies for Private Equities.

Private Equities generally scan the capital markets to identify sectors and companies within those sectors who might be the likely target. This also depends upon a countrie's high economic growth rate with buoyant corporate activities as well as it's macroeconomic stability. Emerging markets offer unparallel opportunities to seek growth and better returns on investments. According to some reports, India offers around 19% for RoI, as compared to 15% in China and 13% in Thailand, among some of the high growth economies. It is this growth story that has been attracting the PE players to invest in these countries. There are in-effect, different nature of operations of an Indian corporate with relation to the West where PE players borrow heavily to finance buyouts and leverage for acquisitions, whereas in India, corporate usually invest their own money rather than investors and shareholders, though the situation is changing fast at present. We have noticed several mega deals of M&A activities where Indian companies have borrowed from the overseas capital markets as -'dollar denominated debts'. Sectors prone to private equity scanners are the software, BPO, Telecom and the recent sprout in Biotech activities.

Private equity’s activity spans from providing the necessary capital to takeover of the management activities of a firm. Added advantages garnered are acquiring the cash flows the particular firm. On this context, PE players also present themselves as management service providers, while holding a major stake in the firm’s equity. They maximize their value through leveraging and other options. As a promoter company, PE players often own stakes in group companies also. Their portfolio investments in group companies are managed by their own corporate managers or in-house management teams. Average holding period for most private equity firms spans from 3-4 years to 6 years, and within this period they turn the entity into a profitable firm and chalk out there exit strategy either through sell off, spin off or M&A.

The private equity activity in India currently is around $13 billion industry and is likely to grow by 15% annually, according to Bloomberg.

For More...........