PVR Ltd’s recent acquisition of Cinemax is regarded as a move leading to consolidation in the multiplex industry. However, the players who made this buyout happen were Multiples Assets, a private equity (PE) fund managed by Renuka Ramnath, and L Capital, the PE arm of French luxury goods conglomerate LMVH. About Rs 245 crore of PVR’s Rs 260-crore buyout was paid together by Multiples and L Capital.
In a similar incident, last year witnessed iGate Computer Systems Ltd’s $1.2-billion (around Rs 6,520 crore on Wednesday) acquisition of Patni Computers, with financial support coming from the US-based PE fund Apax Partners.
Through these acquisitions, PE funds seem to be pushing for consolidation among various industries. According to experts, PE investors prefer to make their portfolio companies leaders in the industry and reap a high margin by selling off their stakes to strategic buyers at a later stage.
“At the moment, certain industry sectors are witnessing consolidation and this is giving an opportunity to PE houses to fund either their existing investees or support new businesses which may end up acquiring businesses to enable the consolidation,” said Sanjeev Krishan, executive director at accounting firm PricewaterhouseCoopers.
Last year, Nasdaq-listed online travel services firm MakeMyTrip had struck a deal to acquire leading travel search engine, ixigo.com with the backing from its PE investor Saif Partners. In the Rs 100-crore deal to acquire a 76 per cent stake of ixigo, Saif Partners had acquired about 56 per cent stake of ixigo, while MakeMyTrip bought the rest. “Very often, traditional means of finance are not available for new-age businesses and that’s where PEs can play a critical role. Some PEs also help the entrepreneur with strategy and negotiations,” said Deep Kalra, founder and chief executive officer of MakeMyTrip.
As part of consolidating its position in Southeast Asian travel industry, MakeMyTrip made several acquisitions in the last two years, which include Hotel Travel Group for $25 million (Rs 135.7 crore), Thailand-based ITC Group for $3.2 million (Rs 17.4 crore), $3-million (Rs 16.3 crore) buyout of Singapore-based Luxury Tours and Travel Pte and the buyout of My Guest House Accommodations.
According to Kalra, investors Saif Partners and Sierra Ventures who are also on the board have been helpful in the discussion and debate around potential mergers and acquisitions. Added Sumit Tayal, director, Helix Investments Advisors India: “Apart from providing the financial muscle for acquisitions, PE investors can help in identifying targets and in structuring a win-win transaction. If the fund has partners with operating experience, they can also support post transaction integration, which is when tangible value gets created for both parties.”
One of Helix’s portfolios, test preparation firm MT Educare, acquired a controlling stake in Lakshya Forum, a north India-based engineering and medical entrance teaching institute, last month. “Education is still a nascent industry, with a few corporatised players. Such players are looking aggressively for inorganic growth, and PE will be an important enabler for them,” Tayal added. Besides acquisition funding, PE investments will help clear debts of portfolios in case of its further expansion. “Apart from acquisitions, at times the PE investment may also help retire debts a company has taken when acquiring a business in the past. We’d expect PE houses to continue to support their investees in acquiring businesses, both in India and overseas,” Krishan added.
Cement industry in India witnessed two transactions by KKR-backed Dalmia Cement in recent past. Dalima Cement had bought Adhunik Cement in a Rs 560-crore deal and bought additional stake in Calcom Cement for Rs 77 crore last month. A recent report by Fitch Ratings had mentioned that penalty on 11 cement companies by the Competition Commission of India (CCI) would lead to further consolidation in Indian cement industry, where 57 per cent of the capacity being consolidated with the top eight players.