Perspective on PE buyout deals: Exploring opportunities for buyouts in India

Abstract

A Buyout is one of the effective models of Private Equity funding capable of reducing inefficiencies in the system. While buyouts, especially leveraged buyouts, have been a very successful model in the West, not much buyout activity has taken place in India, so far. This study analyses the potential of India as an attractive buyout market. The study of the evolution of the UK Buyout Market showed that the Political, Economic and Financial factors play an important role in shaping the Buyout Market. India having one of the fastest GDP growth in the world along a democratic system of governance ensures a stable and growing economy. A series of financial de-regulation has enhanced the efficiency and stability of the financial markets. The Indian Equities market is one of the most advanced in the world. Opening up of many sectors for Foreign Direct Investment (FDI) has attracted large amount if investments. The presence of a stable and progressive financial market has ensured a healthy deal-flow in India as well as attractive exit routes. A strong regulatory framework and a robust monitoring mechanism have ensured that India has a healthy Legal and Governance Infrastructure. In each of the factors discussed India has shown steady progress whether it is deregulation of the financial markets, opening up of different sectors for FDI or improvements in corporate governance norms. The presence of an underlying strong regulatory and policy framework, its stability and progressive nature makes India an attractive market for Buyouts. An analysis of the macro-level parameters (GDP growth rate, FDI inflows, Investments and Exports) shows computer software, construction, telecom to be the most attractive sectors. The existence of an active M&A market is a good proxy for the opportunities for a Buyout Market. The M&A deal market in India is vibrant and growing rapidly with deals of various sizes and in a wide variety of sectors. Relatively greater number of deals in India was seen in lower growth mature industries. Deregulation was a trigger for large deal flow seen in some higher growth industries like Telecom. An analysis of the Private Equity deals shows an active market with a steady growth in Private Equity deals and a wide variety of Private Equity companies in India. Our analysis shows that a relatively greater PE deal flow was observed in high growth service based industries. The extent of buyouts in India although limited so far, has shown promising signs with increasing number of buyout and turn around specialists establishing their presence in India.