What are the unique opportunities the Indian market offers?
Regardless of what happens over a year or two in the short term, we are looking to be in India for the long term. Even in the short term, mergers and acquisitions (M&A) activity should increase because private equity houses feel the devalued rupee creates investing opportunities and we want to capitalise on that and that’s why we are here in India. Even if the market continues to recover slowly from an M&A perspective, if there are operational issues in companies and in private equity portfolio companies, we have our traditional heritage of restructuring and performance improvement services to offer.
Indian PE market is still at a nascent stage and even one full investment life cycle has not been completed…
There are a whole bunch of investments that are not doing well. Our (A&M’s) specialty is in turnaround management. We have the ability to talk to a PE fund and partner with them in their exit process before the lifecycle is completed. We work with PE funds to fix operational issues in their portfolio companies and then enable them to exit. We believe the timing is actually perfect for us given the fact that the industry does have a portfolio of companies that are in trouble.
For a typical Indian promoter, PE investors are just money lenders. Clashes are common between the PE investor and the promoter…
The initial reach is through the private equity firm where the company talks about a particular situation. We, then, get introduced to the promoter with whom we build a relationship. We find the promoter is more willing to listen to us because the individual we put in front of him to talk is somebody who comes from the same industry and who has worked for 20 years in a similar organisation.
In India, where PE firms are minority stake holders, do you think the real issue is convincing the promoters?
Earlier, it was like I want an assured return and you can run the business. But now, the industry has realised that it can’t let the promoter just run the business. That’s why PE firms are hiring less investment professionals but more operating specialists. They actually have operating people working across their portfolio firms. So, PE funds are being very cautious in selecting their deals and are communicating to promoters that they will invest under the condition that they can participate and support operations.
They are not going to be interfering or be domineering but are going to participate more to improve operations. You will see this change coming.
One of the issues in India is that most of the business here are family-run and disputes among family members are common…
These are challenges, but the trends are moving toward that we have to do something on the operational side. Otherwise, if the promoter can’t do it, then the market conditions would change and the competitive environment would change. PE firms have one operating partner or two across a portfolio of 15 companies. They can’t spend all their time in these firms. They might be fixing an issue with one portfolio company, but there can be issues in several portfolio companies and that’s when we can help them.
SOURCE: ALM VANGUARD: TRANSACTIONS - ACQUISITIONS CONSULTING JUNE 2019 REPORT
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