Q&A: David Mussafer, Advent

Last Updated: Tue, Oct 26, 2010 20:00 hrs

With only one investment in the past three years of its presence in India, Advent International Private Equity is hopeful of closing a couple of deals in the next 12 months. The PE firm is looking to invest in financial services, healthcare and the industrial space in India from its $10 billion global fund. In an interview with Abhijit Lele and Shilpy Sinha, managing partner and co-head, Advent, David Mussafer says he is looking to raise another fund of similar size by 2012. Edited excerpts:

You have emerging market funds in Latin America, Central Europe and Japan. Will you be looking at a similar fund for India?
We have two emerging market funds — Latin America and Central European Fund — and then we also have a Japan Fund which is about $500 million. As an organisation with a pan-European fund or a pan-Latin fund, we have realised that if you have the flexibility to invest across countries, you don’t have to set aside any amount. You are more likely to be in line with the market.

If the prices are high and you are at the difficult side of the economic cycle you can migrate your investments. For example, a few years ago, the United States was red high and we found it difficult to invest. So we invested only 20 per cent in the United States from our previous fund and 80 per cent outside.

Which are the sectors you would look at?
There are a few areas such as financial services, asset management, brokerage transaction processing and financial technology. Other segments are industrial space, oil and gas services and the retail space. There can be investments in healthcare, hospital chains.

You have invested only in one company since you set up your presence in India in 2007 (Computer Age Management Pvt Ltd in 2007). What has held you back?
Advent as a firm is very cautious and we have grown slowly with time. Thematically, there is no basic reason why we haven’t done more.

There can be various reasons like the entrepreneur deciding not to sell, both the parties not agreeing to a particular price, etc.

There are instances where our offices have not done a single deal in one year and at other times we do three deals in a year. We are being disciplined investors and if the prices are right for both the parties, the deal will go through.

What is the size of investment you are looking at?
We are looking to do anything from $50-$500 million. We realise there is a much greater volume of smaller deals in India. When the market is growing, we are trying to be a little more flexible here. There is a handful of larger deals but we want to make sure that we are not passing on things only because they are large.

We want to pick up stakes that would give us a position of influence. If the company just wants money, it would not come to us. In India, PE is largely driven by capital needs. If you look at the west, it was not necessarily the capital. Private equity came in to help provide capital and also add value. That has driven the success of PE. In India, PE is evolving and it seems that entrepreneurs are open to collaborating with private equity.

Are you looking at scaling your team in India?
We will continue to add people but it will also depend upon how successful we are in deploying capital. We have got five investment professionals in India.

The type of deals in India is different. The entry multiples are higher, given the growth characteristics. Where we are focused is risk-adjusted returns. India has worked well with the model of low leverage, high growth.

Will you be looking at debt investment in India? 
During the crisis, we had provided a group of capital that may be designated between debt and equity. We bridged some transactions as last year was difficult to originate debts. In India, most of the firms are looking for equity to promote growth.

By when do you plan to raise you next fund?
We would raise our other fund after 2012. By then we would have exhausted 80 per cent of this fund. We typically plan the next fund after having invested most part of the existing one.

vDo you see any impact of restrictions imposed on banks’ investment in private equity?
Banks are actually a very small part of our capital base. Most of the money comes from public pension funds, endowments, corporate pension funds, sovereign wealth funds and insurance companies so the idea of limiting banks’ ability to invest in private equity will not have a material impact on our investor base. It is more challenging than what it was.

Has the expectation of investors on returns been tempered?
When you see interest rates near zero, the single-digit stock market return expectation starts easing. People have tempered their expectations but optimism still exists in private equity.

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