Sain: Buyouts dominate Everstone dealflow

Control transactions are increasing in India, representing two-thirds of its current vehicle

Everstone Capital Partners is taking advantage of the growing number of buyout opportunities in India, with most of its deals being majority stake transactions, Sameer Sain, co-founder of the firm, said at Private Equity International’s India Summit 2014 today in Mumbai.

“Buyouts are beginning to happen in this country. You are beginning to see that you can actually go and buy businesses, I see it on a daily basis, you’ll find that our current fund we are investing will end up with two-thirds control transactions,” he said.

The news gives an indication of how its latest private equity offering, Everstone Capital Partners III, might structure its portfolio.

Sain did not comment on the firm’s fundraising activities, but sources with knowledge of the matter told PEI this month that Everstone’s third India fund has launched targeting $650 million with a hard cap of $700 million.

The International Finance Corporation has also released an investment proposal to commit up to $50 million to the fund, with one source close to the matter saying the process is going very well.

Everstone has declined to comment on fundraising, but apparent LP optimism will not be unfounded, according to Sain, who in his keynote speech this week said that for India’s private equity industry, now is “the best environment I’ve seen”.

His sentiment is fuelled by a number of critical factors, he believes, that have come together creating the most attractive conditions for private equity in India since 2003.

A lack of competition from inexperienced players, a more stable macroeconomic environment and, significantly, the growing number of buyout opportunities are providing GPs with more investment prospects than in the past.

However, while the rhetoric around the increasing number of buyouts continues, some industry players are more cynical about the imminent arrival of more control deals in the Indian market.

Speakers on the private equity panel at the PEI India Summit pointed out that the evolution of the Indian market has not yet reached a point where buyouts will be a common feature in the market.

“All GPs would like to do a control deal. Globally the private equity market is about doing control transactions. But however much GPs say that in India, I’ve seen half a dozen control deals happen in India over the past two or three years,” Raghubir Menon, partner at law firm Armarchand & Mangaldas & Suresh A. Shroff & Co, explained.

“The Indian market is still evolving and the Indian entrepreneur is still evolving to the mindset where he is willing to give up control. So to have a steady stream of control deals in the market – we’re still five to seven years away from that. And with the number of GPs we have in India, competing for the same set of limited number of transactions – yes there will be control deals, but they will be few and far between, at least for a time to come.”

Nevertheless, a number of firms believe they are seeing more entrepreneurs willing to cede control of their businesses, and Everstone’s Sain points out that there are other, more creative ways, of generating buyout-style investments in India.

For example, the firm has invested around $100 million to roll-out Burger King in India.

“There are a few of us that will go out there and take very large bets on creating new businesses. We can go and buy the Domino’s franchise, can do a PIPE in the McDonald’s franchise or you can roll-out your own Burger Kings like we are doing. A lot of us in the room are starting to think that way and do that, and that is how we create businesses at book value.”