The sharp run-up in the equities market and too much of liquidity globally have made deal closures an arduous task, private equity (PE) players said at the sideline of a conference organised by the Asian Venture Capital Journal. With valuations having zoomed to higher than normal levels in the listed space, PE funds are now battling with increased expectations of Indian promoters.
"The PE industry got squeezed in the worst way. As central banks have opened their purse strings, there is a lot of liquidity in the market. Getting quality deals at sensible valuations will be difficult for some time," felt Amit Chandra, managing director and country head, Bain Capital. Bain Capital is one of the largest PE funds globally, managing approximately $65 billion of assets. PE investments in India have dropped sharply from a high of $17 billion in 2007 to $3 billion in 2009. The Sensex has climbed 70 per cent from its lows, among the best performers in the emerging market pack. PE funds have been caught unawares with markets bouncing back too quickly globally.
Most of the sector experts felt that there was a significant competition from other sources of capital such as banks and capital markets. With liquidity having improved, entrepreneurs have a number of options to raise funds. Banks continue to be a cheaper source of capital without the need to dilute shareholding.
"The downturn gave an opportunity to talk to promoters at realistic value. But then it was not long enough and with election results out, the market bounced back. Just as we were prepared to pull trigger on some of the deals, the market went up," said Sandeep Naik, co-head, Apax Partners India.
PE players also felt India was not a market for control transactions, even though some of the world's largest buyout funds have a presence here. "India is not a market where controlled transaction can take place or buyouts happen. Besides, we need a comprehensive regulatory framework for control transactions, in terms of allowing leverage," said Shankar Narayanan, managing director, Carlyle India.
"We would have seen a slew of control transactions, had the slowdown been longer. The window was too short," felt Archana Hingorani, chief executive officer, IL&FS Investment Managers. According to data, PE as an asset class has not outperformed markets, however, returns on control transactions have been much better as they have been able to add value.
Among sectors, the players see immense opportunity in infrastructure, healthcare, education and consumer sectors. "The infrastructure story has widely been talked about and anything that feeds infrastructure will be interesting to look at. Logistics is yet another area, but somehow it has not attracted much attention," said Hingorani.
Sandeep Naik of Apax said, "Healthcare is certainly an area of growing interest. Both in the hospital space as well as the laboratory space. Education, especially kindergarten, preaparatory schools and vocational training institutes offer good investment opportunities."
"We are not interested in investing in asset heavy sector. Anything related with distribution should be interesting as building distribution in India is a challenge. We will try and focus and get into some good distribution platforms," added Sanjay Nayar, country head, KKR (Kohlberg Kravis Roberts).