• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest
• The New Manager

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

D. Murali
C. Ramesh

Chennai, June 30 After the storm of venture capital (VC) funds, it is the turn of global private equity (PE) funds to focus on India as a key attractive destination. While a handful of global funds have already been active in India, the reported $200-million management buyout of Intelenet BPO by the Blackstone group is being seen as a turning point for the sector in India.

As a sector moves from early stage to maturity, the PE activity broadens to include larger deals and greater use of leverage, which is being seen in the BPO and IT services spaces in India, according to Mr Rahul Bhasin, Managing Partner of Baring Private Equity Partners (India).

Speaking to Business Line, he said the maturity of a sector determines aspects such as size of customer base, quality of management talent, M&A activity and PE deal sizes.

“Sharing of wealth creation with managements was a trend that started in the late 90s through private equity investments. This has now become well established in transactions like Blackstone’s acquisition of Intelenet, our investment in Secova and other such deals. People are the most important resources in these businesses and structuring appropriate participation in wealth creation is critical for their success.”

According to Mr Bhasin, consolidation among companies in the BPO and IT services sector is expected to increase as economies of scale and size lead to significant entry barriers.

He believes that access to customers and talent in an increasingly competitive environment will be two big drivers of M&A activity.

“Existing players will bulk up inorganically to compete effectively in the marketplace and to widen their service offerings.”

He added that additionally, opportunities such as hiving off captive businesses and acquiring inefficient assets in other geographies will lead to larger transactions.

“There will be scope for PE players to drive improvement in operational efficiencies of existing businesses by taking significant stake in them. All of this will result in greater deployment of capital in this sector.”

In his view, emerging areas such as high-end non-voice BPO and infrastructure management services will continue to attract smaller, organic growth-focused investments.

And the biggest challenges in such businesses will be seen in attracting a talented work-force and strong teams, including middle management, to help them scale to the next level.

On whether the rise of private equity will tend to impact the growing VC industry in India, Mr Raj Atluru, Managing Director at Draper Fisher Jurvetson, a VC fund, said: “I view the two sectors as pretty independent, with some overlap with later stage venture capitalists and smaller private equity firms. In India, there is more overlap between VC and PE. Globally, they just don’t see each other that often.”

Mr Alok Mittal, Executive Director of Canaan Partners, another US-based VC fund that has set shop in India, said that he expects the impact of the Blackstone deal to be minimal, since VCs and PEs have traditionally focused on different kind of companies.

“Directionally, it will cause pressure on large-ticket size deals. The strategic impact of China getting involved in investing through intermediaries is also very interesting. I do not expect a direct impact on the VC industry, though.”

More Stories on : Mergers & Acquisitions | Foreign Institutional Investors

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Vidula Jalan to get Mangalam Timber Products

Copyright © 2007, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line