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January 31, 2009

The Loot seeks to capitalize on slowdown

Outlook Business has a profile of the discount clothing retailer The Loot.
How does a retail chain that offers massive discounts make profits? "We make money on buying, not on selling," claims Gupta. Here’s how it works: the company buys stocks in bulk from 100 national and foreign brands, paying cash for the entire lot. The cash payment makes it a win-win deal: the suppliers get their money immediately, and in return, shower massive discounts on The Loot.

Under the terms of the agreement, though, The Loot cannot return unsold stock, and that is a huge risk it runs. But it’s a trade-off—since they can book outright sales against cash and expect no liabilities, the suppliers extend the huge discounts. And that’s how The Loot ultimately makes its money. For instance, unlike other retailers, it can procure a pair of shoes that has an MRP of Rs 1,000 for Rs 300. In turn, it may sell the shoes for Rs 500, offering the customer a 50% discount on MRP and still enjoying a hefty margin in the bargain.

The Loot’s proposition is to guarantee big discounts on big brands all through the year. "Brand-conscious shoppers who now have tight budgets because of the slowdown will find The Loot more pocket friendly," says Gupta. The model seems to be working well—the company’s margins have grown from 9% in 2004 to 38-40% today.
Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

Prospects for Solar Energy Brighten

Outlook Business has a mult-part article on the prospects for solar energy in India in light on of the new policy measures.
Two policy measures in the last month, the first by the Centre, hesitant, yet calibrated, and the second by Gujarat, bold and ground-breaking, indicate that the tide is changing in the struggling power sector. The Centre’s Integrated Energy Policy (IEP) is significant, for it seeks a gentle shift to a market system by freeing primary energy sources from the trap of administrative controls, subsidies and pricing. A regime that pivots on optimal choice of fuels and technologies, based on sound economics, is expected to emerge.

...Even as the Centre is taking measured steps by way of the IEP and a national solar mission that is being tweaked at the Prime Minister’s Office (PMO), Gujarat’s Chief Minister Narendra Modi, the man in a hurry, has pre-empted the latter. On January 6, he announced a radical solar power policy for Gujarat, setting a target of 500 MW of solar power generation. Even the Ministry of New and Renewable Energy (MNRE)’s recent generation-based incentives for solar power, with a country cap of 50 MW, pales before the Gujarat initiative.

In one stroke, Modi has put his state in the same league as Spain, which passed a new solar energy law in September 2008, with a 500 MW cap. Spain saw frenetic growth of 300% in new installed photovoltaic (PV) capacity (See FAQ on page 64) in 2007, under an earlier law. Modi is already finding takers for his initiative. Acme TelePower, a Gurgaon-based energy company, signed up for a 110 MW plant costing Rs 1,320 crore in Gujarat on January 12. "We are looking at a generation target of 1,000 MW in the next five years," says N Venkataraman, Executive Vice-President, Energy Solutions.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

January 29, 2009

"The strange case of Asarco"

TheDeal.com has an article on how the two bidders for the bankrupt copper mining firm - India's Sterlite and Mexico's Grupo Mexico - are pushing for a lower price.

Listen to Grupo Mexico's lawyer, Jorge Lazale, who told the Arizona Daily Star that "today we are not willing to pay everyone in full. [Asarco] decided not to engage with Grupo and now they are paying the consequences. Now they will get cents on the dollar."

...Sterlite's latest offer is $2.1 billion, a decrease from the $2.6 billion it backed out of on Oct. 13. When it reduced the offer by a more realistic $500 million, Sterlite blamed frozen credit markets and the decline in copper prices for its inability to finance its own operations and complete the acquisition.

But there is a wild card that makes Lazale's comments a bit more wild-eyed. At a Jan. 13 status conference in front of Judge Richard S. Schmidt in the U.S. Bankruptcy Court for the Southern District of Texas in Corpus Christi, Asarco disclosed that it was not only still negotiating with Sterlite and Grupo Mexico, but that it was also considering a third proposal with Glencore International AG.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

January 27, 2009

Master class on Valuation, Valuation Guidelines & Reporting Guidelines

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January 26, 2009

Why VCs are more bullish on product cos. now

As part of its cover story on software products, Businessworld had organized a roundtable discussion featuring, among others, Subash Menon, CEO of Subex Systems and Sudhir Sethi, chairman and managing director of IDG Ventures India. Excerpts:
Subash Menon: Products have a life of their own. Services go around the products. One cannot stand in for the other. You have a delivery model that is SaaS (software as a service). That is what is prompting this question to some extent. But then SaaS is just that, a delivery model. You still need a product to deliver SaaS. You cannot have a service being delivered as SaaS. India as a country has to get going on the so-called software space, as is understood globally, then you have to have your own products that are expected by the customer.

Sudhir Sethi: I call it the Brownie movement, which has been seen in the past two years in terms of what is happening on the entrepreneurial side as far as product is concerned. Two to three years ago, the number of venture investors used to be from a financial engineering background. Whereas, in the past three to four years, a lot of industry people have come into the venture world. Many product companies have been funded by people with very deep operating backgrounds who have entered the venture industry. That was a very big thing per se.

Secondly, as a fund, out of our $50 million, we have committed $40 million to products. Interestingly, two of them are serial entrepreneurs. We are finding more incidence of serial entrepreneurs doing the second or third attempt at the company, and it really does not matter whether the first or the second has been a success or not. The experience itself is worth its weight in gold.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

"Are Indian markets cheap?"

The Indian market is trading cheap, but not yet at distressed levels, says Akash Prakash in an article for Business Standard.
Investors are uncomfortable using earnings-based valuation tools as there are worries on what is the real earnings power of companies. I am not talking about fraud here but simply the fact that earnings have risen as a percentage of GDP, and as is typical in strong economic cycles, companies have potentially over-earned compared to the sustainable profitability of their underlying business model. If companies have over-earned in the past few years how does one adjust for this? Over the last few years, we had a virtuous cycle of rising capacity utilization, falling rates, significant pricing power, easy access to capital and surging growth rates. All this combined to supercharge earnings and capital efficiency ratios. Unfortunately most of these factors are now in reverse, with the inevitable consequence on earnings. Investors are beginning to realize that in many companies earnings are far more cyclical than they had realized. Strong economic growth can disguise inherent cyclicality, and once exposed, cyclical earnings attract lower multiples. Many supposedly secular growth stories will be exposed as cyclicals which benefited from the huge tailwind that India had over the last five years.

...We are coming off a huge bull cycle in 2003-2007. Given the quantum of stock price appreciation, it is logical that the markets will only bottom out with time and when they appear very-very cheap. India has probably not yet reached that stage of extreme price attractiveness — the markets are cheap, yes, but not yet distressed.

With the passage of time as we get more comfortable with the economic outlook, one may need less margin of safety on earnings and have a greater willingness to pay up for growth. Investors have to be willing to extend their time horizons again and not become obsessed with the next quarter. For that we need the elections out of the way, and some semblance of normality globally.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

January 24, 2009

More trouble in store for the "Ponzi Economy"

Peter Schiff, about whom I have written about before, has now been profiled in Fortune, in which he continues to forecast more doom and gloom for the US.
"We have an economy that's based on the same principles as Bernie Madoff's investments," he says. "It's a Ponzi economy. It's not real. We don't save and we don't produce anything anymore. We simply borrow from the rest of the world, and then we spend it. We've had a giant party. We bought all these plasma TVs and iPods. We remodeled our houses and took vacations. But you know what? The bills are coming in."

..."I'm as negative as I've ever been," he says, "because everything the government is doing now is going to make the situation much, much worse. They're trying to reflate this bubble. All along I knew that what would potentially be fatal wasn't the recession itself but the government's response. But what they've already done exceeds even my worst-case imagination." Schiff is predicting a wicked post-party hangover. He sees a multiyear recession ahead marked by rampant inflation, a steadily weakening dollar, soaring commodities prices, slumping U.S. stock indexes, and falling wages.

...Schiff's current investment advice is the same as it has been for years: Get your money out of the U.S. dollar and into more fundamentally sound currencies like the Swiss franc or the Singapore dollar; buy some precious metals; and buy foreign, dividend-paying stocks, with an emphasis on natural-resources companies.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

January 20, 2009

"Philips Healthcare keen to acquire more cos. in India"

Businessworld has an interview with Ronald de Jong, senior vice-president and CEO for emerging markets at Philips Healthcare. The firm has recently completed the acquisition of two healthcare companies — Mumbai-based Meditronics and Alpha X-ray Technologies.
What was the rationale behind the acquisition of Alpha X-ray Technologies and Meditronics?
There are a couple of reasons. Philips Healthcare has traditionally been strong in the high-end premium range of the market. We wanted to complement our product offering in India with products that are more value-priced and we wanted to do it inorganically. Today, we import a lot of products to India. In India, in the cardiovascular segment, for instance, the demand is very different than that of the West. It is for products with more basic functionality and that are value for money. For X-ray machines, about 20-22 per cent are imported, so if you do it locally, it is a great advantage. We are trying to capture that value. Over time these products will be marketed under the Philips brand. On the other hand, for the acquisition of Alpha in the cardiovascular market segment, the clear plan and ambition is also to export products from that company first to other emerging economies, and probably in the longer term to mature economies as well.

...What are the company’s expansion plans in India?
We have big ambitions. We are planning to increase our workforce to reach out to tier-II and tier-III cities in a bigger way, to step up marketing efforts and strengthen our customer support services. We have a clear game plan to grow our business in India considerably over the next two years, and we expect revenues for our healthcare business to reach 100 million euros beyond 2010.

...Are you looking at new acquisitions in India?
Yes, we are constantly looking at companies that could complement our portfolio.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

Who is Murali Divi?

Businessworld has a profile of the Founder of Hyderabad-based Divi's Labs, which is charting stupendous growth.
It all began in 1984 for Divi, a postgraduate in pharmaceutical chemistry from the College of Pharmacy in Manipal, Karnataka. Seven years into working in the US at large specialty chemical and custom pharma manufacturing companies — first as production manager and vice-president of R&D at Fike Chemicals, and then as technical director at Schulkill Corporation — he returned to his home state of Andhra Pradesh to strike out on his own. He co-promoted two companies, Cheminor Drugs and its subsidiary Globe Organics in Hyderabad. These companies, he felt, would leverage his skills in fine chemicals manufacturing that had been honed at the US factories. An indigenous pharmaceutical industry was just making its presence felt in India after the country relaxed its patent laws in the 1970s to allow copying of drugs patented to western drug companies. His partner in these ventures was K. Anji Reddy, founder of Dr Reddy’s Laboratories...

...After he quit the JVs, Divi started small. He launched Divi’s Research Centre, an R&D and consulting company that engineered new manufacturing processes to make known drugs, and sold these to the highest Indian bidder. Divi hired fresh graduates in organic chemistry instead of experienced hands since he wanted “a different mindset”. He personally trained the first two layers of researchers. In 1994, he added a factory, investing Rs 71 crore, and changed the company’s name to Divi’s Laboratories to make bulk drugs using its proprietary processes.

...The numbers speak for themselves — Divi’s market cap, at nearly Rs 8,000 crore on 15 December, equalled that of Dr Reddy’s on that date. Top multinationals are Divi’s customers, and he is the world leader in manufacturing patent-expired painkiller naproxen, which when he started out had over 20 contenders. Naproxen accounted for about 20 per cent of the company’s sales in fiscal 2008.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

How is Adlabs faring under ADAG?

Businessworld has an article on how the leading film processing firm is doing post its acquisition by Reliance ADAG.
But Anil Ambani’s Adlabs made Shetty’s Adlabs look puny with leapfrogging growth and a steady flow of funds. In 2005, Ambani infused Rs 227 crore by way of equity and $100 million (Rs 450 crore) through a foreign currency convertible bond (FCCB) issue, thereafter.

Three years after the takeover, Adlabs owns close to 450 screens, most of them overseas. The lion’s share — 200 — was acquired in the US, another 51 in Malaysia and six in Mauritius. In India, the company has 186 screens spread over 83 cinema properties providing 71,000 seats.

...However, the spanking expansion has dented the company’s once healthy bottom line. For the first quarter of the current financial year, net profit is just Rs 2.3 crore compared to Rs 22.4 crore (yoy). For the quarter ended September 30, this financial year, the company has actually suffered a net loss of Rs 20.8 crore.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

January 17, 2009

Speaker Lineup for APEX '09 Summit & Awards

We are delighted to announce a stellar list of speakers for APEX '09, the Indian Private Equity Summit, scheduled for February 4 at Mumbai. The Annual Summit brings together the cream of the Indian Private Equity/Venture Capital-Entrepreneur Ecosystem to introspect, brainstorm on the way forward and reward its best.

Confirmed Speakers at the Summit include:


Executives & Entrepreneurs

R. Sridhar
CEO
Shriram Transport

R. Subramanian
CMD
Subhiksha

R. Ravimohan
MD & Regional Head
Standard & Poor's

Goutham Reddy
Director
Ramky Group

PE/VC Investors

Varun Sood
Managing Partner
Capvent

Subbu Subramaniam
Partner
Baring Private Equity

JM Trivedi
Partner
Actis

Sunil Kolangara
Director-Private Equity
UTI Ventures

Senthil Kumar
Director
Real Image

Ishan Raina
CEO
OOH India

Service Providers

Rajesh Begur
Partner
ARA Law


Click Here to view the event agenda.

For Participation details, email info@ventureintelligence.in or call +91-44-45534303

January 16, 2009

"Bullish on Emerging Markets Real Estate"

Knowledge@Wharton has an interview with Gary Garrabrant, CEO of Equity International, an investor in non-US real estate-related companies.
K@W: You referred to India, and of course this is as current a time as any to be thinking about political risk in India, considering the unprecedented terrorist attacks that have taken place there in recent times. There has also been a significant political backlash following those attacks. Is that likely to affect the way you think about your activities in India?

Garrabrant: It is a factor. We stay at the Taj Hotel and I recognize those images. It is really haunting and a terrible tragedy. And there may be a local linkage -- to what extent, we do not know. What it says to me is that anything can happen anywhere. We consider India to be a country that is characterized by non-violence and democracy and process, and so this is really unprecedented for India. For us, the bigger issue as an investor in India is finding the right partner. We continue to look for that partner.

K@W: What is your prognosis for the next 18 to 24 months?
Garrabrant: I think it is going to be a difficult period. I am very bearish on the U.S. I think the consumer is exhausted and overlevered and it is going to take some time to reverse that. We remain quite bullish about emerging markets and those areas which are seeing growth even on a diminished level. [I'm talking] about India, China and Brazil specifically. The growth of the middle class is a powerful trend. We are still selling homes in Mexico and Brazil as opposed to the developed economies. I think when we finally see a turn, likely sometime in 2010, it will begin in those markets.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

The race to pipe gas

Outlook Business has a cover story on how the discovery of new sources of natural gas will have a profound impact on the energy economy of India by 2012 and the rivalry between Reliance Industries and the public sector GAIL to pipe gas into homes.
In July 2008, about 775,000 households in 19 cities across India were receiving piped gas. Those numbers are set to explode in the next five years—about 70 cities and 30 million households. Bids are being invited for distribution of natural gas in cities, and the first award of six cities should happen in March. Every company of any significance in the gas business is interested—biggies like GAIL and Reliance Industries, mid-level players like Gujarat Gas, fringe players like Sabarmati Gas and Haryana Gas. At a minimum investment of Rs 200 crore per city, city gas distribution (CGD) could see an investment of Rs 14,000 crore over the next five years.

...The first piece is a manifold increase in gas output. India has seen a lot of gas finds in the past few years. Reliance Industries, ONGC and Gujarat State Petroleum Corporation (GSPC) have struck gas in the Krishna-Godavari Basin off Andhra Pradesh. ONGC has found some in the Mahanadi Basin adjoining Orissa, in addition to what it is already pumping from Mumbai High and Ankleshwar off the Western Coast. Cairn Energy has fields off Gujarat and Andhra Pradesh.

...PNGRB is targeting CGD bidding in 200 cities by 2012. For most cities, it will be a head to head contest between Reliance and GAIL. Both have bid for all six cities available in phase-I. In the second phase, Reliance has shown interest in 61 cities; GAIL in 30, though it could end up bidding for more.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

January 15, 2009

Speedbreakers for Tollroads?

Business Today has an article describing the resistance - both from political parties and users - for a newly introduced toll road on the outskirts of Bangalore.
The toll collection activity at six entry and exit points on the 41-km peripheral road, forming an arc on the southern fringes of the City, ignited instant opposition. Many protesters alleged that the particular stretch between Bannerghatta Road and Electronic City—the suburb that boasts many famed IT addresses, including Infosys—is not ready yet, and they are accessing it through a mud road. There were others who found the toll to be steep.

Different sections gave vent to their ire in different ways. While some blocked traffic on the road, others destroyed toll booths at a few places. Following this, Nandi Infrastructure Corridor Enterprises (NICE), the project developer, suspended toll collection, particularly at the Electronic City booth, which bore the maximum brunt of protesters ire, for a few days.

...There are a number of roads across India, including the Golden Quadrilateral, which levy a fee on users and are functioning without much problem. “People will not resent paying a toll if they find benefit in it. They will not complain, too, as long as they can see their savings from using the road being higher than the toll that they pay,’’ says Pradeep Puri, MD, Noida Toll Bridge Company, a listed firm borne out of a PPP initiative and promoted by Infrastructure Leasing and Financial Services (IL&FS).

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

January 14, 2009

"Liberalising preferential allotments will encourage PE investments"

In an interview to Business Standard, Rajeev Gupta, Managing Director of Carlyle India, explains the bottlenecks in doing preferential allotments in the current environment.
What is stopping the firms from getting investment?
Basically, there are two ways in which capital can be raised. One is from investors who can participate through what Sebi has labelled as QIPs (qualified institutional placement). Second is through preferential allotment to PE firms and some of the largest players are present in India. Regulations are quite benign for QIP issues to portfolio investors. The six-month price floor rule does not apply to QIP allotments. However, this rule does apply to preferential allotment to PE firms.

Why can’t PE firms participate through QIPs?
In QIPs, no one investor can have more than a 50 per cent of the shares offered by a company. And, there should be at least five investors. We put a lot of energy to understand the company and its business. We want a significant ownership in the company. Therefore, in the last three months the PE flow has been very small. And, during the current three months, it will remain small.

So, what is the possible way out?
What we are suggesting is for the rule of two weeks’ average price being applicable, as opposed to six months’, there should be two categories. One category should be promoters and those acting in concert with the promoters. If a promoter wants to take an allotment to a company, or a person acting in concert with the promoter wants to take an allotment in concert with the company, then this six months’ rule should be applied. All those who are non promoter entities are financial buyers. I am not a strategic buyer. I buy it for a certain horizon, after that I quit the stock. When an allotment is made to PE funds then this six months’ rule should not be applicable.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

"Media sector is set for consolidation "

Outlook Business has an interview with
Puneet Goenka, CEO of Zee Entertainment Enterprise.
I don’t expect anybody to fold up, but consolidation will definitely happen. Some may band together, while others may go to new owners. All those who are conscious about spends will definitely survive. The newer players face greater risks as they’re also under pressure to perform.

...Zee is the most profitable media company in all of Asia. That is because we concentrate on revenues as much as we do on spends. In fact, our dependence on advertising revenues is significantly lower than most other media companies. Almost 60% of our revenues come from our distribution business, which includes cable, DTH and international markets (subscription-based).

...Historically, Zee has always been a cost-conscious company. Our priority today is to find ways to squeeze more revenues. The cheapest source of entertainment during a recession is television. Instances from the past prove that TV viewing has always seen an increase in a depressed market. Going by that logic, I am hopeful that the distribution side of our business will grow 25% in the coming year and will compensate for the drop in advertising revenues. Our international distribution business will grow by at least 10-12% in the coming year.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

Whither Sovereign Wealth Funds?

They have gone from being feared to (almost) felt sorry for in a very quick span. Now, Outlook Business has an article examining how SWFs are likely to behave going forward.



Even as the US, Europe and many other parts of the world stare at a recession, many SWFs may alter their very nature from being externally focussed investment engines to becoming resource providers for internal growth. They also face the prospect of a significant depletion in resources as their domestic economies slow down.

...It is too early to deliver a verdict on whether the November 2007 charge of SWFs into the global financial arena was just a solitary event or a sign of things to come. Developed markets such as the US and Western Europe would benefit from their infusions, despite widespread nationalistic fervour against them in those economies. But the greater benefit would be to the economies that sponsor such SWFs.

This is perhaps best illustrated by the October 2008 $12.3 billion joint investment by Qatar Holding and Sheikh Mansour Zayed Al Nahyan, a member of the royal family of Abu Dhabi, in UK’s Barclays. "As Dubai, Doha and Abu Dhabi are positioning themselves as global financial centers, it is beneficial to have close ties with a Merrill Lynch or Citigroup or Barclays," says Griffin of BGR Capital & Trade.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

How HCL outsmarted Infosys on the Axon acquisition

In an interview to Outlook Business, Vineet Nayar, CEO of HCL, explains how his company managed to snag Axon at a price lower than what rival Infosys had originally bid for the UK-based IT Services firm.

There were three smart things we did. First, we borrowed the money. Second, we took a dollar loan; we could see that the US dollar was falling against the pound. When we made the bid, it would have cost us $786 million; today, it’s $650 million. We saved $136 million in the dollar-pound conversion alone. Third, we bought 10.43% Axon equity from the market. We knew that whatever we did, we could always buy the stock at much lower rates in the market. Our ceiling was 650 pence, but we bought from the open market at 600-630 pence. Putting all this together, the total cost of ownership for HCL is significantly lower than what Infosys had bid.

...We had thought out our moves well. It was important for us that analyst reactions were negative. We did not want the deal to look attractive to a third party. The more negative the industry was about the deal, the less chance of a third party coming in. Analysts were talking about $780 million. It ultimately came to about $650 million. Why did we acquire 10.43%? To demonstrate our aggression to the third party—that we were there to stay. As per the contract, Axon was supposed to inform us if a third party approached them. The moment that happened, we would have upped the 10.43% to 26%, forcing the other party to get 74% votes to acquire the company.

...We worked with (Axon’s management) to explain their roles and responsibilities within HCL. We explained that there would be a reverse merger of the HCL SAP practice under them. They understood that they would be twice as big after the acquisition. They also saw that they would have HCL’s balance sheet and 400 sales guys selling for them, plus an additional 250 customers to sell to. All this enthused them, especially because their brand would remain. The unit will be called HCL Axon and they will be independent.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

January 12, 2009

Global M&A Activity to Recover in Second Half: KPMG Survey

From the latest KPMG M&A Predictor forecast:
KPMG Corporate Finance’s Global M&A Predictor forecasts that 2009 will see a continued fall in global mergers and acquisitions (M&A) but that deal activity should slowly return late in the year as liquidity improves and attractive value is recognized in certain sectors.

The latest Predictor — a forward looking survey of 1,000 leading companies’ estimated net debt to EBITDA ratios and prospective Price Earnings ratios – reveals a significant fall in 12-month forward corporate valuations and therefore appetite to do deals (down globally 22.2 percent from 15.3x end May 2008 to 11.9x at the end of November 2008). Forecast Net debt to EBITDA ratios have moved from 0.93 times to 1.06 times, a 13.5 percent deterioration, signaling a decreasing capacity to do deals. Stephen Barrett, Corporate Finance International Chairman at KPMG, commented: “Findings from our latest Predictor confirm our view that 2009 will be a very subdued year for M&A activity. We expect global deal volumes to continue to fall through to Q3 and, with less liquidity in the market and reduced debt market liquidity, appetite and capacity for doing deals will continue to decline.”

“However, our detailed analysis of the results of KPMG’s Predictor, coupled with historic M&A cycle trends, leads us to believe that there are indications that the corner may well be turned late in the second half of this year. I believe that those people who ended 2008 feeling battle fatigued in the face of endless bad news stories have started the New Year with a desire to kick-start the deals market — something which may be facilitated by the opportunities which will inevitably emerge for value investors in certain regions and sectors. I also believe that the market players to watch will be those able to execute cash deals — such as companies who have preserved cash contingency funds; some sovereign wealth funds; and private family offices. Within 12 months, I think we will start to see some clear signals of a slow, but purposeful, recovery in the M&A transactions marketplace. A reliable indicator that this time has arrived will be when quality assets come on the market and go for reasonable, rather than fire-sale, prices.”

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

January 11, 2009

Fund News: NYLIM India closes $440-M Third Fund

From the Press Release:

Jacob Ballas Capital has announced the closure of its third India-dedicated private equity fund at $440 million The latest fund, NYLIM Jacob Ballas India Fund III, takes the firm's total assets under management to over $600 million. The latest fund's investor base is diversified globally across the USA, Middle East, Japan, Europe and Asia ex-Japan. About 85% of Fund III’s investors are financial institutions, sovereign funds, pension funds and funds of funds, while 15% comprise reputable family offices and private investors.

For more informaton, visit http://www.jbindia.co.in

George Soros on the Credit Crisis

MIT has an interesting video interview with George Soros on the credit crisis.

Hat tip: Paul Kedrosky

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

January 07, 2009

ICICI Venture's healthcare SPV plan

Economic Times has an interview with Rajeev Bakshi, joint managing director of ICICI Venture on its SPV, I-Ven Medicare, which is creating a string of hospitals across the country. The firm to integrate the individual hospitals into a single company that can be taken public.
It is a simple, affordable, speciality healthcare model wherein we have bought into a set of entrepreneur doctors who already have established clinics/hospitals in certain locations. We have also bought into an entrepreneur manager who is in the process of putting together a team of professionals to set up a chain of healthcare services across a certain region. We give them growth capital so that the teams of these entrepreneur doctors can leverage their basic competencies to open up more such healthcare clinics in their areas.

We have bought into four such nodes across the country. One each in Karnataka, Maharashtra, West Bengal and Delhi. The aim is to unleash the power of these entrepreneurs from a very basic level. We are bringing these four facilities under an apex organisation. While the four nodes are trying to optimise systems within their own networks, we are trying to optimise across the network. Simply put, we are building an organisation at the centre that will essentially focus on 4-5 things. It will have a small team of up to 8-10 people. As we speak, we already have seven senior professionals.

...In most of the cases, I-Ventures hold the majority stake. We have struck separate deals for these nodes. Each deal depends on the amount of capital we put in. Our stakes go up if we put in more capital. I-Ven Medicare, which is an SPV wholly-owned by the fund, owns these four properties. Later, the shares of these individual doctors will be flipped into the main company. As for exit option, we will go for an IPO at the top or we actually sell the entire top to somebody.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

January 06, 2009

What's Changed in Silicon Valley

The New York Times has an article "about the types of companies that will receive some of the estimated $31 billion venture capital firms raised in 2008".
WEB 2.0 HEYDAY IS OVER. Venture capitalists once poured money into Web sites that were free to users and that made money selling advertisements. If the site involved social networking, so much the better. But as growth in ad spending online cools and social networking becomes commonplace, the days of trying to be the next YouTube, Facebook or Yelp are over, said Jeremy Liew, managing director at Lightspeed Venture Partners...Even Accel, an early investor in Facebook, might have turned that company away if it approached the firm today, said Theresia Gouw Ranzetta, an Accel partner.

CLEAN TECH GETS REALISTIC. Venture capitalists are still chasing clean technology. Through September, $3 billion was invested in technologies that create alternative energy and conserve power, up from $1.9 billion the year before, according to the National Venture Capital Association. But big, expensive projects like building factories to manufacture solar panels or biofuels are falling out of favor...Instead, some venture capitalists are looking at technologies that monitor energy demand, like software that tracks and regulates a building’s energy use.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

January 05, 2009

Interview with Sarath Naru of Ventureast

Ventureast, recognized as one of the committed early-stage investors in India, has been investing quite actively in 2008 across three funds – the sector-agnostic “Proactive Fund”, the seed level-focused Ventureast-Tenet Fund and the Biotech Venture Fund. While Proactive Fund and Ventureast-Tenet were raised in 2007, the firm is raising a new successor fund to the biotech fund under the new name of “Life Fund”. Also, in November 2008, the Ventureast-sponsored special purpose acquisition company (SPAC) or "blank check" company announced that it is acquiring an over 80% stake in Solar Semiconductor Ltd., a Hyderabad-based maker of solar photovoltaic modules.



Sarath Naru, Managing Partner of Ventureast, recently spoke to N. Sriram of Venture Intelligence on the new developments at the firm. Some excerpts:

Venture Intelligence: Now that there are a few others firms focusing on the seed-to-early stage funding space, will there be a change in your strategy?

Sarath Naru: We are venture style investors into highly differentiated businesses and unproven risk is the essence of our style of investing. I don’t think we would start doing private equity kind of investments.


VI: Which are the sectors that you would invest in going forward? Which are the sectors that you would stay away from?


SN: We are open to investing in all the businesses where there is innovation and sectors which are rapidly growing. Innovation could be in the business model as opposed to technology innovation.

We don’t do pure play Real Estate. However, we do invest in infrastructure-related services - one of our bigger investments was in Ocean Sparkle. We have recently invested in a company that is into water supply infrastructure and irrigation infrastructure for semi-urban and rural areas.

On the Economic Slowdown

VI: What is the impact of the global economic slowdown on fund raising?

SN: Investors believe that VCs will be least affected by the current situation. We think experienced managers should be able to continue fund raising.

VI: How would the economic slowdown impact valuations?

SN: In India, there has never been abundance of early stage money though there has been early stage investing in the tech side over the last 12-18 months. The valuations were not abnormal. My belief is that this would continue and founders will figure out ways to stretch money longer.

VI: What about deal flow?

SN: I think it is going to get tight. One reason is that some of the funded companies have vanished. Non-cyclical sectors will see decent deal flows. It is because of this reason we feel that healthcare would see a lot of action.

On Life Sciences

VI: How different is investing in life sciences from other sectors?

SN: Investing in drug discovery and device development related companies requires very different skills from IT oriented tech investing. Very little drug discovery and device development kind of work happens in India. A fund manager’s ability to be patient matters a lot. With drug discovery and medical devices, the valuation of the business does not change until much later. Even after reaching phase 3 clinical trial, the success rate still remains 1 in 7. It is a lot more complex than IT investing.

VI: You are now raising a successor fund to your Biotech Fund under the name of Life Fund. What’s behind the name change?

SN: We wanted our earlier fund to be first Biotech Fund in India. Since then, environmental related concerns have become very important. We need clean environment related solutions for sewage, garbage disposals and so on. It is all about improving your life through pharma, healthcare, drug discovery, food and agri-products. Hence the change of name to Life Fund (to capture the broader focus).

VI: We thought Trans-India Acquisition Corp. was originally floated to invest into Life Sciences; but it has ended up investing into a solar tech company. Why?

SN: The mandate of the fund was to invest in Life Sciences or renewable energy segments. Life Science did not happen not because of lack of opportunity but because of valuation concerns. We felt that valuations in the pharmaceuticals/life science space in India were pretty high. Also, we had to list or reverse merge the company with a US-listed company. So it had to have some arbitrage with the multiples in the US. If there was no arbitrage between the Indian and the US multiples, there was no value to the investors in the US. Also, the tax structure and regulations to do the same deal with a listed company were also very complicated.

January 04, 2009

'Politics and fraud hold the key'

In his column appearing in Businessworld, Bill Emmott, points out why the length and depth of this recession would probably depend most on politicians and fraudsters. How true in light of the Satyam fiasco!
A recession, especially one that is global in nature, is a time of great social stress. Unemployment rises, incomes fall, export earnings collapse, savings are lost, companies face big losses or even bankruptcy. That places a huge amount of pressure on politicians and government officials: some will be blamed for the trouble, all will be expected to do something to cure it. The big unknown, however, is how severe is the blame, and how will the political leaders react.

...In many recessions, confidence returns in a natural way once people see that disaster has not happened, and once some begin to think that business opportunities are so cheap that they have the chance to make a lot of money during a recovery. So investment revives and recovery does happen. But this is where the second issue, fraud, comes in.

The affair of Bernie Madoff, the seemingly respectable New York money manager who has defrauded his investors of up to $50 billion, is extremely damaging to confidence. If savers, whether individuals or big institutions such as banks and pension funds, come to think that every money manager might be another Madoff, then they will keep their money in cash and government bonds for much longer. That is what happened in Japan after its 1990s financial crash: private investors felt they had been robbed, and so stayed away from equities even when interest rates were zero. If more frauds are exposed, then savers will take longer to regain confidence, and it will take a lot longer before companies get the capital they need to make the world economy recover.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in