Private Equity Rakesh Sony Director, MOPE 1 AGENDA • PE-Overview • Why Private Equity • PE-India • Conclusion 2 MOTILAL OSWAL PRIVATE EQUITY • MOPE Investment Advisors Private Limited (“MOPE”) currently manages and / or advises four funds with combined corpus of Rs. 2,200 cr o India Business Excellence Fund-I (“IBEF-I”), a 2007 vintage Rs.550 cr fund § 13 investment across 11 sectors § Have partially exited from 2 companies o India Business Excellence Fund-II (“IBEF-II”), a 2011 vintage Rs.950 cr fund § Fund raised from marquee global Institutional investors § Already made six investments o Actively deploying capital in growth opportunities o India Realty Excellence Fund (“IREF-I”), a 2008 vintage Rs.200 cr fund § 7 investments in Mumbai, Bangalore and Pune o India Realty Excellence Fund (“IREF-II”), a 2013 vintage Rs.500 cr fund • Awarded ‘Best Growth Capital Investor 2012’ by Venture Intelligence, a leading provider of information on private equity in India. Awardees for this award are chosen by a jury panel consisting exclusively of institutional investors 3 PRIVATE EQUITY - AN OVERVIEW Private Equity refers to the equity capital raised by companies, mostly unlisted, from Private/ Institutional Investors. • Offshore and domestic Institutions • Thematic funds • Fund of Funds Raise • Sector agnostic funds • Family Offices/HNI’s Capital Evaluate • Buy out funds • Retail Investors Market • Multi Strategy Funds Segments Exit Portfolio • Proprietary Companies • Intermediaries (CA’s & • IPO – Public market sale PE IB’s) Generate • Secondary/Strategic Lifecycle • Evaluate Investments Sale Deal Flow • Buy Back and Nurture Investment Portfolio companies • PE rights like board Negotiate & representation etc Structure • Institutionalization • Exit rights like tag Investments • Corporate governance along, drag along etc • Improving • Investment horizon systems/processes (5-7 years) 4 INDIAN PE STORY Pre 1995 1995-2000 2000-2005 2005-2007 2008 onwards 1984: 1995: 2002 Late 2005 2008 • ICICI decides to • Overseas investments • IDFC sets up IDFC PE • SEBI allows PE • Economic recession allocate funds for VC in VC Funds permitted • Partial exits of Warburg investments In real hits PE industry In Activity with tax Incentives Pincus in Bharti Airtel estate India • VC funds allowed to be 1986: formed other than 2003 2006 2009 • ICICI launches first VC banks and financial • Actis makes one of the • Warburg fully exited • Deals pick up • Fund to encourage Institutions. First buy out deals – Bharti pocketing around • Next trillion dollar start ups Nitrex chemicals $ 1.5 bn opportunity 1996: • Successful IPOs of PE 1988: • SEBI issues VC Fund 2004 • backed companies like 2010 • TDICI set up (now Guidelines. • Investment activity • Suzlon and HT Media • Increased activity. ICICI ventures) picks’ up. • ICICI and Actis becomes • PE backed SKS • First guidelines issued 1999: • 6 PE backed companies Active In the buy out Microfinance gets in 1988 • SIDBI capital formed Patni and Biocon go arena listed • Chrys Capital came into public! 1989: existence 2007 2012 • Regional funds APIDC, 2005 • India – A Trillion dollar • New AIF regulations GVCL and Canara VC 2000: • Start of Broad based Economy set up. • Amendments in1996 • Investment in non IT • Peak PE investments at 2013 • First private equity regulations to fuel industries ~15bn$ • Spurt in the fund setup Credit growth number of exits Capital venture Fund • Mutual fund (UTI) sets worth over $600mn (India) Ltd by Lazard up PE arm, UTI and ADB. ventures 5 INDIAN PE FUND STRUCTURE In INR > ` 5 bn Buy outs PE/ Buy Out Funds Growth, Pre- ` 500 mn - `1 bn Growth PE IPO, PIPE Funds ` 50-500 mn Early Stage VC funds Institutional Seed Funds VC, + ` 25-50 mn Angel Networks/HNIs Early stage HNIs/Faith Capital < `25 mn 6 PRIVATE EQUITY INVESTMENTS - OVERVIEW 12.0 800 11.0 11.2 759 766 10.3 10.4 743 10.0 718 700 10.0 600 8.0 518 500 433 6.0 400 4.4 300 4.0 200 2.0 100 0.0 0 2009 2010 2011 2012 2013 2014 Value (USD $ Billion) No. of Deals Source: VCC Edge 7 P R IV A TE 6 0 E 0 Q 0 U 5 0 I 0 T 0 Y 4 I 0 N 0 0 V E 3 S 0 0 T 0 M 2 E 0 0 N 0 TS 1 0 0 - 0 1 8 S 4 E 3 C 0 1 T 1 O 1 R (2 Agri-business 2 0 0 1 6 4 BFSI ) 1 8 8 4 Diversified 0 5 5 6 2 Education 2 8 3 7 Energy 1 1 4 3 Engg. & Construction 5 6 FMCG 2 1 8 3 6 Food & Beverages 9 Gems & Jewelry 1 5 2 Healthcare & Life Sciences 4 9 Hotels & Resorts 0 V IT & ITES al u 5 e 0 (U Manufacturing S 8 D 0 $ Media & Entertainment M 3 il Other Services 0 lio 1 n 8 ) Retail 2 1 Shipping & Logistics 1 3 3 Sports & Fitness 2 1 Telecom 4 9 0 Textiles & Garments So u r Travel & Transport ce : V e n tu re In te lli ge n c8e PRIVATE EQUITY EXITS - OVERVIEW 6.0 245 250 5.5 5.0 184 200 4.2 4.0 3.9 150 318.67 152 170 150 3.0 2.3 100 2.6 2.0 50 1.0 0.0 0 2009 2010 2011 2012 2013 2014 Value (USD $ Billion) No. of Deals Source: VCC Edge 9 TOP 10 PRIVATE EQUITY INVESTMENTS - 2014 Deal Value Target Date Buyer(s) Sub- Industry (USD $ mn) Tiger Global Management, Accel India Venture Fund, Iconiq Capital, MIH Holdings, Morgan Stanley Investment Management Inc., DST Global, GIC Flipkart Pvt. Ltd. Jul-14 $1,000 Internet Retail Special Investments, Sofina Societe Steadview Capital Master Fund Ltd. ,Tiger Global Management, MIH Flipkart Pvt. Ltd. Nov-14 Holdings, DST Global, The Qatar Investment Authority, GIC Special $700 Internet Retail Investments , Iconiq Capital BlackRock, Tybourne Capital Management, Temasek Holdings, SoftBank, PI Jasper Infotech Pvt. Ltd. Oct-14 $637 Internet Retail Opportunities Fund I, Myriad Asset Management Ltd. Kotak Mahindra Bank Ltd May-14 Canada Pension Plan Investment Board $374 Diversified Banks L and T Infrastructure Construction & Feb-14 Canada Pension Plan Investment Board $321 Development Projects Ltd. Engineering Data Processing Sutherland Global Services Jun-14 TPG Capital Inc. $300 & Outsourced Inc. Services Internet SoftBank, Tiger Global LP, Steadview Capital Master Fund, Matrix Partners ANI Technologies Pvt. Ltd. Oct-14 $210 Software & India II LLC Services Flipkart Pvt. Ltd. May-14 Tiger Global Management, Iconiq Capital, MIH Holdings, DST Global $210 Internet Retail Apparel, Kalyan Jewellers India Pvt. Aug-14 Warburg Pincus India Pvt. Ltd. $198 Accessories & Ltd. Luxury Goods Intas Pharmaceuticals Ltd Aug-14 Temasek Holdings Advisors India Pvt. Ltd. $160 Pharmaceuticals Source: VCC Edge 10 WHY PRIVATE EQUITY • PE comes with intelligent capital at the transformation stage of a business and help it achieve accelerated growth • PE players act as partners to management/promoters sharing risks and rewards equally and not act as mere investors • PE players actively provide continuous strategic assistance and expertise to § Expand management bandwidth by recruiting new resources § Help to structure strategic mergers & acquisitions, enter new territories and roll out new ideas § Improve corporate governance through active engagement • Provide a sounding board with independent directors • Support business growth by not only investing own capital but also assist Portfolio companies to raise further capital • PE investment establishes a pricing benchmark, which helps companies to get a better valuation at the time of IPO • PE players help portfolio companies to focus strategically in order to create maximum value 11 WHAT A PE FUND LOOKS FOR INTO A COMPANY 12 WHAT A PE FUND LOOKS FOR INTO A COMPANY Proven Passionate & Institutional Revenue Quality Leadership Capital Allocation Successful Exit Model Approach • Assessment of revenues based on core fundamentals rather than Hypes and Hopes • Businesses with sustainable margins and earnings growth • Scalable businesses • Operating Cash flow generation by the company • Competitive strengths 13 WHAT A PE FUND LOOKS FOR INTO A COMPANY Passionate & Proven Revenue Institutional Model Quality Capital Allocation Successful Exit Leadership Approach • Clarity in vision • Execution capability and organization building skills • Superior understanding of businesses • Role model and focused • “Can we work along with management with for the next five years” • End of the day, it is the Leader’s vision and execution which makes the difference between a good and great company 14 WHAT A PE FUND LOOKS FOR INTO A COMPANY Proven Revenue Passionate & Capital Institutional Model Quality Leadership Successful Exit Allocation Approach • Properly planned investment • ROI based investment evaluation • Investment to generate long term value • Strategic view of every money spent • Ability to en-cash/exit any investment 15 WHAT A PE FUND LOOKS FOR INTO A COMPANY Proven Revenue Passionate & Capital Allocation Model Quality Leadership Institutional Successful Exit Approach • Ability to embrace change • Promote Institutionalization • Qualified CXOs • Second level leadership and efficient delegation of powers • Appointment of reputable auditors • Adoption of efficient systems and procedures 16 WHAT A PE FUND LOOKS FOR INTO A COMPANY Proven Revenue Passionate & Institutional Successful Model Quality Leadership Capital Allocation Approach Exit • IPO-ability of the company after 3-5 years. § “Does the company have a story which can be sold in the public market” • Secondary sale to different private equity: § ”Will the company be an interest to other PE players” • Strategic sale § “Does the company’s technological capabilities / market presence /niche products or services attract industry majors to acquire the company” 17 INDIAN PE - EXIT PATTERNS • The success of the decade old Indian Private Equity story can be judged by the returns it has been able to generate for its investors. • A lot of investments dating back to 2007, the landmark year of PE investments, have matured for realization and are waiting to be liquidated.