Brief History of India’s Investment Revival (part 1)
I attended a recent Investment in China and India Summit hosted by Financial Research Associates I will use this forum to share some of the slide/insights that were given at this summit for the benefit of those hoping/thinking/planning on investing in an Asian country - China, India or Japan.
I received a brief history of India’s Investment revival. I will share it here in three parts.
In 2004, the Indian Private Equity market moved into a different league with several mega deals – in both investments and exits - being struck. PE firms invested over $1.65 billion in 71 Indian companies during 2004 - significantly more compared to the $774 million invested during 2003. The $500 million buyout of GE from its Business Process Outsourcing subsidiary by General Atlantic and Oak Hill was the single largest investment during 2004 followed by Warburg Pincus’ $149 million investment in optical storage media maker Moser Baer.
With Late Stage, PIPEs and Buyouts accounting for 62% of all investments, PE firms continued to show a clear preference for the less risky large companies. Also in 2004, PE investors moved away from their usual focus on export-led sectors and paid more attention to companies that could benefit from the booming domestic economy.
PE firms obtained exit routes for their investments in at least 29 India-based companies during 2004 with six PE-backed companies pulling off successful IPOs during the year.
The biggest venture backed IPOs of 2004 were that of Mumbai-based IT services company Patni Computer Systems and Bangalore-based bio-technology firm Biocon. (Patni had raised about $100 million from US-based General Atlantic Partners. Private Equity investors GW Capital and AIG together held a 12% stake in Biocon prior to the offering.)
IBM’s acquisition of Gurgaon-based BPO services firm Daksh e-Services for about $160 million was the biggest deal among the mergers and acquisitions based exits during 2004. Daksh had raised venture capital from Actis, General Atlantic Partners and Citibank Private Equity.
The spectacular exits in companies like Biocon and Daksh during 2004 allayed fears about the lack of exit opportunities and attracted several new PE and VC firms to India during 2005. PE firms invested about US$2.2 billion in Indian companies across 146 deals during 2005. With 43 deals worth about $412 million, the Information Technology and IT-Enabled Services (IT & ITES) retained its status as the favorite industry among PE investors. IT & ITES was followed by the manufacturing industry, with 27 deals worth about $371 million. By the end of year, Temasek and Warburg Pincus had each invested over $1 billion in Indian companies.
The exit momentum continued with PE investors obtaining exit routes for their investments in 43 companies during 2005. Seventeen PE-backed companies raised about $950 million via IPOs during 2005. The largest PE-backed IPO during 2005 was that of wind energy turbine maker Suzlon Energy, which raised $342 million. The oversubscribed October IPO fetched spectacular returns for Suzlon’s private equity backers including Citicorp and ChrysCapital.
PE firms also realized some spectacular exits during 2005 via M&A and secondary deals. Warburg Pincus completed its exit from New Delhi-based listed telecom services company Bharti TeleVentures during 2005 - selling a 6% stake for $560 million via the public stock markets and a final 5.65% holding to UK-based Vodafone for $847.5 million. At the time of Warburg’s final stake sale, Bharti was valued at $15 Billion – 10 times that when Warburg invested in the company five years ago. Warburg’s total realization: over $1.6 Billion – i.e. more than 5.5 times its original investment amount.
Two other “trade sale” exits during 2005, the acquisition of CVC International’s stake in i-flex (by Oracle) and the exit of Actis and AIG from BPL Communications, also involved transactions worth over $500 million each. In a spectacularly profitable exit, CVC International sold its 41% stake in publicly listed banking software company i-flex Solutions to US-based Oracle Corp for $593 million. i-flex, the largest India-based software products firm, had raised $400,000 from CVC in 1992.
And then, India was ready to take its place on the global economic theatre.
For more information, email arun@ventureintelligence.in
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