Challenges involved with growth capital investments are increasing in China and India as they transition to the next level of market maturity, according to a panel at the PE Asia Forum in Hong Kong.
“There are issues with growth capital,” said Jim Hildebrandt, managing director of Bain Capital. “You may not be able to change the management team or change the strategy, and exits are an issue which become more substantial when markets are tougher. You end up targeting a higher rate of return because of these issues.”
China, he believes, is entering a new phase in which more control opportunities will emerge in the next 5 – 10 years. He has observed a greater willingness among owners of Chinese businesses to move from majority to minority stakes. In addition, the family planning policy in China means that family-owned businesses have fewer children to take over the family business.
India, by comparison, still has a long way to go before family-dominated companies become more open to giving up control of their businesses.
Private equity has a role to play in guiding the transition from family-owned structures to professionally managed businesses in India, added Anthony Miller, partner and chief executive, PAG Japan.
“If it's a product expansion or regional expansion strategy, two sisters and a brother can't pull it off,” he said.
But the family business is distrustful of outside management and advisors.
“Confidence issues arise – they may think they are giving their intellectual property away or [management consultants] will set up shop with a competitor. The value from us is that we can help manage that insecurity or anxiety the company has and reassure them they can actually take on professional management.”