Innovations in Management Opportunities and Challenges National Level Symposium May 27 & 28, 2013

JSS Centre for Management Studies Sri Jayachamarajendra College of Engineering, JSS Technical Institution Campus, Mysore

Recent Trends of Private Equity Funding in India

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PROF CHOWDARI PRASAD TAPMI, MANIPAL MAY 28, 2013

Recent Trends in PEVC in India

 A private Equity firm is nothing but a private group of investors, who make money through purchase and sale and ownership of private equity. As against publicly traded equities that are purchased and sold in the stock market, private equity funds deal with equities that are not available publicly. Private equity is unlike debts or loans to the company like bank loans and bonds since equities have greater potential for return and risk as compared to debt.
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What is Private Equity?

Private Equity2
Private Equity firms are companies that invest in private businesses by buying their shares and equities. These are heterogeneous organizations that differ in objectives, strategies and resources and these companies frequently invest in companies under sectors like communications, biotechnology, semiconductors, software and hardware.
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Top 10 PE Firms in India

1. ICICI Venture 2. ChrysCapital 3. Sequoia Capital 4. India Value Fund 5. Kotak Private Equity Group
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6. Baring Private Equity Partners 7. Ascent Capital

8. CX Partners
9. Everstone Capital 10. Blackstone Capital
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Recent Trends in PEVC in India

Some more PE Funds in India

11. 12. 13. 14. 15. UTI Ventures CVC International JM Financial Evolvence New Bridge Financial Advisors 16. IDFC Alternative 17. Warburg Pincus 18. Actis 19. Carlyle 20. KKR - Kohlberg, Kravis and Roberts 21. Xander 22. Walton Street Capital 23. CCMP Capital Advisors

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Recent Trends in PEVC in India

Other players in PE domain

KPMG Bain & Company PriceWaterhouse Coopers Ernst & Young Grant Thornton Mckinsey & company Deloitte Venture Intelligence VC Circle IVCA
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GOI MoF, DEA, DFS SEBI / RBI / NSE /SIDBI / IDFC/ CBDT /FIPB / DIPP Law Firms / Acts .Cos, Contract, Trust, IT, LLP Management Consultants ------------------------------- Youtube CNBC TV18 Bloomberg
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Recent Trends in PEVC in India

Some recent announcements in Newspapers on PEVC Fundings

1. 2. 3. 4. 5. ET May 23 / Why P Es follow Shriram TOI 21 May /p13 Ex-execs face off to buy Mphasis TOI 18 May / PE Actis ends $2bn road JV with Tatas ET 16 May / Tatas PE Fund eyes pie in the Sky ET /Turnaround to Help Second-Run of VC funded firms 6. ET / Blackstone eyes realty investment

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Recent Trends in PEVC in India

1.ET May 23 / Why P Es follow Shriram

Even in most difficult year, PE funds booked INR 520 crore in profits from exits in Shriram Group
SHRIRAM EPC
ChrysCapital $0.8 mn ChrysCapital $22 mn Bessemer $15 mn New Vernon $4.2 mn
SHRIRAM TRANSPORT FINANCE
ChrysCapital $30 mn ChrysCapital $112.5 mn TPG Capital $307 mn

SHRIRAM CITY UNION FINANCE

ChrysCapital, ICICI Venture $70 MN Chrys Capital $36 mn ICICI Venture, Norwest $17 m

SHRIRAM NEEDLE BEARING

ICICI Venture $0.1 mn

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Recent Trends in PEVC in India

2. TOI 21 May /p13 Ex-execs face off to buy Mphasis

P Es tap old & new managements to acquire controlling state from HP TAKEOVER Battle : Buyout bids - HP working with Citigroup to sell its 60% stake - It has had talks with TPG, Advent, Carlyle and Kohlberg Kravis Roberts & Co - Some of them have approached Jerry Rao to structure an acquisition - Rao unlikely to play any active executive role
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A. VC Industry in India - Chronology

World Bank study GOI policy initiative lead to Guidelines for Venture Capital Funds, 1988 (CCI) Restricted to setting up of VCFs by Banks/F Is GOI Guidelines for Overseas VCs in Sept 1995 CBDT Guidelines for flow of Foreign Currency governed by RBI requirements SEBI (Venture Capital Funds) Regulations, 1996 1999 Union Budget speech / SEBI Committee on VC set up in July 1999 / KB Chandrasekhar2000
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VC Industry in India2
Advisory Committee on VC Dr Ashok Lahiri, as Chairman Report to SEBI in 2003 14 Members GOI/MoF/CBDT/RBI/E&Y/IVCA/ IIM-L/SIDBI VC Ltd/ UTI VF / ICICI VFM / IL&FS Investment Managers / Kotak Mahindra VC / Chartered Accountant / SEBI Representative Covered : Amendments / Operational issues / VCF and FVCI / VCFs / Tax related issues / Foreign Exchange controls / Regulation of VC / Size of VC industry / International scenario
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B. Phased Development in India

Phase I : Formation of TDICI in 80s and regional funds : GVFL / Andhra Pradesh IDC in 1990s Phase II : Entry of Foreign VCFs in 1995-1999 Phase III : Emergence of successful India-centric Venture Capital firms : 2000 onwards Phase IV : Increasing appetite of investing in India by US VC and PE companies around 2003
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PE Funding 1990-2005 Globally

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14

PE Funding in India : 2000 - 2006

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15

Growth of VC/PE in India

16000
14234

450

14000

400
387

12000
299

350

300

10000

280

250
8000
7500 6390

200

6000
146

170

150

4000

110

100
78
71 56 1650 2200

2000

1160

937

50

591

470

0 2000 2001 2002 2003 2004 2005

No of deals

0
2006 2007 1st half of 2008
Value of deals

WGFI Report dated July 30, 2010

PE = Permanent Establishment? Prussia, 1845!

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Working Group on Foreign Investment : GOI : MoF/DEA : Report dated July 30, 2010
Shri UK Sinha, CMD UTI AMC Chairman Dr KP Krishnan, Secy, PMs Econ. Advisory Council Shri Ashutosh Dikshit, Jt Secy, Tax Policy., DoR Shri Govind Mohan, Jt Secy, Infr & Investment, DEA Shri KN Vaidyanathan, Executive Director, SEBI Shri Madhu Kannan, MD&CEO, BSE India Ltd., Shri Ravi Narain, MD&CEO, NSE India Ltd Dr Ila Patnaik, NIPFP; Dr Ajay Shah, NIPFP; and 8 Other senior Govt Officials, Consultants
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Private Equity Investment in India (Source: NSE and Business Standard)

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The Global VC and PE Country Attractiveness Index, 2011

Second Annual Report by IESE Business School of University of Navarra in Barcelona..Sponsored by Ernst & Young (E&Y) and in cooperation with Emlyon Business School 3 Authors: Prof Alexander Groh, Prof Heinrich Liechtenstein and Mr. Karsten Leiser (2 Professors and Manager) Includes 80 countries / emerging economies (66 in 2009/2010) Parameters: Economic Activity, Depth of Capital Market, Taxation, Investor Protection and Corporate Governance, Human and Social Environment, and Entrepreneurial Culture and Deal Opportunities India is at 30th rank with 61.4 while USA is no. 1 (100) and UK at no.2 with 93.3 followed by Canada, Singapore, Switzerland and China at no.20 with 72.3 Kyrgyzstan at no. 80 and index of 14.4
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India : VC PE Ranking 2007/2011

Parameter
VCPE Ranking Economic Activity Depth of Capital Market Taxation Investor Protection / Corporate Gov Human / Social Environment

2007 Rank
26 3 18 62 42 43

2011 Index
61.4 108.9 68.9 84.9 59.6 53.1

2011 Rank
30 2 15 72 46 46

Change
Adverse Favourable Favourable Adverse Adverse Adverse

Entrepreneurial Culture / Deal Opportunity

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45

38.5

54

Adverse

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SEBI (AIF) Regulations, 2012 (May 21)

Has Seven Chapters and Two Schedules Definitions including AI Fund, PE, VCF, VCU Covers: Registration of AIF, Categories I to III, Eligibility Criteria, Furnishing of Information, Procedure for grant of Certificate and refusal, Investment Strategy, Placement Memorandum, Schemes, Tenure, Listing, General Investment Conditions, SME Funds, Conditions for Categories I to III AIFs, Others, General Obligations, Conflict of Interest, Transparency, Valuation, Obligations of Manager, Submission of Reports to SEBI, Winding Up, Inspection by SEBI, Procedure of Action in case of default, Miscellaneous..& 2 Schedules include forms , fees, etc.
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BW May 21, 2012 : Growth in PE

Year 2004 2005 2006 2007 2008 2009 2010 2011 PE No. 63 145 245 347 304 170 230 234 PIPE No. 30 64 65 90 64 42 46 61 PE (Mn $) 1,583 2,259 6,514 13,101 9,586 3,562 7,432 8,824 PIPE (Mn $) 618 977 1,326 3,306 1,494 639 680 1,570 Source: Venture Intelligence
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PIPE@ 39 43 20 25 16 18 9 18 @As a % of total PE amt

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The Fourth Wheel : IVCA /GT Report 2012

As on a recent date, in India, PE funding was to the tune of $ 63 bn, in 2,000 companies, in 8 years by about 200 PE Funds in 400 deals.
Details Amount of PE funding 2012 $ 7.4 bn 2011 $ 8.8 bn % Change -15 Remarks Decrease

No. of Deals
Average Deal Size - Infrastructure - Real Estate - Banking, Financial Services - IT and IT Enabled Services - Pharma, Biotech & Healthcare
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244
$ 18 mn $ 311 mn $ 715 mn $ 687 mn $ 1,867 mn $ 856 mn

234
$ 23 mn $ 766.4 mn $ 1,075.3 mn $ 815.6 mn $ 1,408 mn $ 261.3 mn

+0.4
-21.7 -59 -33.4 -15.7 +19 +227

Increase
Decrease Decrease Decrease Decrease Increase Increase
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Recent Trends in PEVC in India

VC Circle : Study May 20, 2013

What do Limited Partners want from Indian private equity fund managers: Results of an exclusive VCCircle survey of global LPs? A VCCircle survey of over a dozen foreign institutional limited partners with significant exposure to the region suggests that India remains an important market to them and the good news is that nobody is saying No to India. That said, LPs realize that India is not a beta play and they need to cherrypick fund managers based on their track record.
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VC Circle Study - 2
A majority also believed that the public reputation of Indian PE is bad with almost 100% of respondents agreeing that the contraction in the Indian PE industry is almost probable and necessary. As balance of power shifts to LPs, there were also some interesting responses seen on what should be the ideal management fee structure for Indian PE funds. LPs also shared their views on aspects like: do they prefer allocating capital into Indian PE spin-outs; their return experience from Indian PE; do they mean to increase or decrease their allocation to the region or the key barriers for Asian LPs as they start or consider expanding their commitment to Indian PE among others
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PE deals to see moderate rise: Survey Ref www.IndiaPE.com

Private equity players expect a moderate increase in deal activity in India during 2013 with healthcare emerging as the top pick for these investors, a survey said. Expectations about deal activity in 2013 remain cautious but still positive on the whole. Our interviews suggest that deal activity will see moderate growth in 2013 throughout the industry. The steps taken towards improving Indias legislative framework have made investors a bit more upbeat , and general partners suggest that more deals will close in 2013, Bain & Co and IVCA said in the India Private Equity Report. Last year, there was a mere 4% rise in the number of deals, reflecting the cautious mood of investors in the wake of political uncertainty and concerns over the India growth story. Although the mood has improved, investors appear only marginally upbeat. Private equity funding will only grow in India if the policy framework is supportive. Policymakers need to be quick and decisive in creating new legislation, the report said. Source: Times of India
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Ref : Conference Papers / Articles-1

1. Chowdari Prasad and KS Srinivasa Rao (2006), Private Equity Funding and Venture Capital in India, presented at the International Conference on Business & Finance organised by ICFAI, Hyderabad, December 2. Chowdari Prasad and KS Srinivasa Rao (2007), Private Equity Funding in India Issues and Challenges, presented at the Fifth AIMS International Conference on Management
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Ref : Conference Papers / Articles-2

3. Chowdari Prasad and Durga Prasad, M (2012), Recent
Trends of Private Equity Funding in India, TAPMI, Pratibimb, monthly e-magazine 4. Mahesh Nayak (2012), The Vicious Cycle : In Depth / Private Equity, Business World, May 21 5. Prathima IVN and Chowdari Prasad (2006), Private Equity Is it Here to Stay?, TAPMI Research Learning through Inquiry and Investigation Compendium of Research Papers through FacultyStudent Partnership, March

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Ref : Conference Papers / Articles-2

6. Robert S Harris, Tim Jenkinson and Steven N Kaplan (2012), Private Equity Performance : What Do We Know, University of Virginia Darden School of Business 7. Sajal Singh (2006), Venture Capital Investments in The Indian Market, ABA SBL Annual Meeting Hawaii, August 06

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References-Developments-1
1. 2013 Private Equity Fund Outlook : In search of firm footing : Deloitte Report 2. 2013 : International Finance Corporation, World Bank Group : The Case for Emerging Market Private Equity 3. Second Innings - An Industry in transition : Private Equity annual roundup 2012 India (E&Y Report) 4. Private Equity roundup India, Quarterly Newsletter for Quarter-1 of 2012 by Ernst & Young
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References-Developments-2
5. May 21, 2012 : The Gazette of India Extraordinary, Part III, Section 4, SEBI Notification (AIF Regulations, 2012) 6. Private Equity : Fuelling Indias Growth Deloitte IVCA Report, May 2012 7. Jan 2013 Report : The Fourth Wheel - 2012, GT and IVCA : PE in the Indian Corporate Landscape 8. The Global Venture Capital and Private Equity Country Attractiveness Index 2011 annual : IESE BS, University of Navarra, E&Y, and Emlyon B-School
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References-Developments-3
9. India Private Equity Report, 2011 Bain & Company : Indian Venture Capital & Private Equity Association 10. Venture Intelligence Report : Private Equity Impact 2011 KPMG and Ascent Capital 11. India : Private Equity Funds : Attracting Domestic & International LPs : January 28, 2011 : Arvind Mathur 12. Report of the Working Group on Foreign Investment, 30 July 2010 : DEA, MoF, GOI, New Delhi 13. Private Equity Investments in Indian Companies : June 2010 Nishith Desai Associates, Mumbai

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References-Developments-4
14. Private Equity and Venture Capitalism : A Report on India and China (2008) : Zpryme R&C 15. Working Paper by Mrinalini Kochulpillai (2008) The Indian Protection and Utilisation of Public Funded Intellectual Property Bill, 2008 : Is the Indian Innovation System Ready: Part III 16. Foreign Investments in India : Report of Expert Group on Encouraging FII flows and checking the vulnerability of Capital Markets to speculative flows, November, 2005
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Some Websites
www.altassets.net www.asiaventure.com www.economywatch.com www.evalueserve.com www.ey.com www.gt-india.com www.ibef.org www.iciciventure.com www.indiape.com www.idfc.com
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www.indiavca.org www.nasscom.org www.nseindia.com www.pwcglobal.com www.tie.org www.vccircle.com www.vcindia.com www.ventureintelligence.in www.venturewoods.com www.wikipedia.com
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Recent Trends in PEVC in India

Thank you
MY CONTACTS: 9482549472 OR 9242124642 OR 0820-2701045
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