Making it Count – How PEs and VCs in India manage their portfolio investments
KPMG in India recently has present a report titled – Making it Count – How PEs and VCs in India manage their portfolio investments by KPMG in India.
Private equity investing in India has come of age, with investments across sectors and maturity cycles of companies. KPMG in India’s analysis of over 1900 investments and 500 exits between 2015 to 2020 indicates that the:
· Aggregate annual deal value has doubled and the annual deal count has increased by over 60%
· Median holding period of investment has doubled from c. 3.1 years in 2015 to c. 6.2 years in 2019
· With the exception of sectors like telecom and utilities, PE investments have outperformed capital markets with an average IRR of 29% (Analysis based on a select set of 300 exits between 2015 and 2019)
These trends are indicative of sustained confidence in the India growth story and a mature investing model of patient capital following high-growth companies with a proven track record and a potential to transform.
But in a market flushed with funds, what differentiates a good PE from a better one is their ability to add value to the portfolio and catapult their investees to the next league, by bringing in their operational expertise, opening doors in the market and within their portfolio and ensuring that all stakeholders are aligned with their vision. Whilst we see an increasing trend in PEs preferring buy-out/controlling stake transactions, we have also been seeing a recent trend of traditional ‘financial’ investors playing an active role in driving strategic initiatives in their portfolio.
In the analysis of ten case-studies of private equity investments in India, the report has identified typical PE-led interventions in their portfolios, that are initially focused on protecting the base estate and subsequently maximizing the value of these investments. These interventions are typically focused on giving the investor a good oversight into the operations of the company, remediating known issues and providing actionable insights on ways to transform their operations.
When executed well, these interventions have helped companies
· transform the brand image and market reach
· invest in paradigm-shifting new-age technologies
· extract cost synergies and multiply profitability
· benchmark themselves vis-à-vis competition and learn from global best practices
The report has also analysed instances that went awry, be it due to the tendency of some investors to nudge their investees to ‘run before they can walk’ or forcibly try and add-value without completely aligning with the promoters/managers or evaluating the ability of the company to undertake a transformation journey.
The ongoing pandemic has only tested the relationship between PEs and their portfolios, with those who have reposed confidence in the management teams and accelerated the transformation journey (control costs, minimize supply disruptions, digitize customer journeys, facilitating funding lines) emerging as investors of choice in the market.
Vikram Srinivas, Partner, M&A Consulting, KPMG in India said “Though there is no single playbook on how a PE should manage its portfolio, in a competitive deal environment, what differentiates the best-in-class is their ability to bring in operational expertise, have an eye on the prize - five years ahead and become catalysts of growth to achieve that desired end-state’
