Private equity funds leverage big gains for portfolio firms, beyond capital

When Blackstone exited Intelenet last month, the latter's enterprise value surged by a whopping 250 per cent during the hold period of three-and-a-half years.

Blackstone, the world's biggest buyout firm, managed this by delivering six of its portfolio companies as customers, which contributed to Intelenet's topline growth. This was at a time when the values of most of its publicly traded peer group declined sharply.

Blackstone's not an exception. At a time when corporate valuations are pretty much flat, private equity funds are using more ways than one to enhance valuations of portfolio firms, including leveraging cross linkages between companies and getting them market access in Western countries.

L Capital Asia, the private equity fund of the world's largest luxury products group LVMH, is clear that apart from the money that it brings to the table, the strategic value that it can offer to portfolio companies is what differentiates it from the other funds.

This includes helping mid-level firms on international expansion plans by introducing them to leading department stores and negotiating better rental location and rates by leveraging the LVHM platform, L Capital Asia's Managing Partner, Mr Ravi Thakran, said.

L Capital Asia announced its first investment in India on Thursday by picking up 25.5 per cent stake in Genesis Luxury Fashion Pvt. Ltd, which is looking beyond just the capital infusion for future gains.

“Apart from the capital infusion into our business, we will gain immensely from L Capital's vast global network and knowledge sharing in the luxury and premium brands business. With the fund's strong focus on consumer brands, lifestyle concepts, beauty and wellness, this association will be a catalyst for our plans of foraying into the premium and fast-fashion brands business,” Mr Sanjay Kapoor, Managing Director of Genesis Luxury, said.

New York-based Zephyr Management, L.P., a global private equity and marketable securities firm that has stakes in firms such as WLC India, Maxop Engineering and Metro Wireless, maintains that in addition to providing capital, it aims to add value to its portfolio companies by leveraging its global relationships in the international corporate and financial markets.

Blackstone's sale of Intelenet to the UK-based services group Serco for up to £385 million, apart from marking one of the biggest private equity exits from an Indian firm, exhibited just how much the fund's leverage power helps in enhancing valuations of a portfolio firm.

“The Intelenet transaction is a great illustration of the value that Blackstone's ownership brings to our investments… Blackstone brought value by delivering six of our portfolio companies as customers, which contributed meaningfully to revenue. During our ownership, we also created 13,000 new jobs. We ultimately generated a 2.3 multiple of invested capital at a 26 per cent gross IRR (internal rate of return) in a sector which declined significantly,” Mr Tony James, President and COO of Blackstone, said in a July 21 investor meet.