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September 30, 2010

"LPs concerned with style drift among Asian PE funds"

Interview with Vincent Warner, Managing Director and Chief Executive Officer, Chepstow Capital Vincent, a sponsor at the marcus evans Private Wealth Management APAC Summit 2010, on how mid-market companies are driving growth in Asia. (Extracted from our partner event Press Release)

What barriers are family offices in Asia facing at the moment?

Vincent Warner: There has been a significant change in the private equity landscape in Asia. Many groups which started as mid-market private equity firms have grown in size and are now concentrating on larger cap investments. Equally, many firms which established themselves, or opened offices in Asia with a buy-out strategy have eventually realised that Asia does not have as many buy-out opportunities as exist in the West; so their strategies have needed to shift towards significant minority and influence, instead of control investments.

Family offices and foundations are therefore facing difficulty in identifying groups with enough experience, a good track record over many cycles and appropriate strategies for the opportunities on the ground, to invest capital on their behalf. There is a wide range of pricing and quality of companies across Asia. Those who want to deploy capital in the region need to identify a manager who has the experience through multiple cycles to evaluate opportunities.

What investment opportunities can they take advantage of?

Vincent Warner:
Asia is driven by mid-market companies. Even 75 per cent of listed companies have a market cap of less than USD 250 million. With many private equity groups moving to large cap, there is a heavy concentration of capital and funding targeting large cap deals and a shortage of experienced groups targeting mid-market companies.

Chepstow’s strategy is to focus and remain focused on mid-market companies through a series of funds, on a pan-Asian basis. There are many mid-market private equity opportunities, with two requirements: capital and the requirement for value-added input from the private equity manager. Investee companies which recognise that they have both these requirements, have only a small number of qualified private equity groups to choose from, and, Chepstow is in most cases able to obtain exclusivity before the opportunity has been shown to other private equity groups.

What sectors do you think will perform particularly well in the coming few years?


Vincent Warner: The number of consumers and their desire to see value for money and diversity of choice is growing, thus there are significant consumer driven opportunities across Asia, particularly in China. The middle-class populations are now spending money on items which are discretionary in nature, which include retail, education, entertainment, leisure and tourism.

The second area which is a strong theme for Chepstow is the development of Asian rural areas and in third and fourth tier cities, where businesses are benefitting from growth in rural economies and through government policy. We are also focused on the trade flows between countries in Asia, such as Indonesia and China, which are very active. We believe that this dynamic will continue in the future.

Across Asia, fast growing mid-cap companies, well managed with high quality operations and integrity are seeking capital to become the large cap companies of the next decade.

About the APAC Alternative Investments Summit 2010

This unique forum will take place at the Marina Bay Sands, Singapore, 27 - 29 October 2010. Offering much more than any conference, exhibition or trade show, this exclusive meeting will bring together esteemed industry thought leaders and solution providers to a highly focused and interactive networking event. The summit includes presentations on the latest investment trends, optimal asset allocation and portfolio diversification strategies for competitive advantage.

For more information please send an email to news@marcusevanscy.com or visit the event website at http://www.apacaisummit.com/media_vi_tn

September 28, 2010

Vikram Akula vs Muhammad Yunus

SKS Microfinance founder Vikram Akula and Grameen Bank founder Muhammad Yunus present two very different viewpoints on how to scale microfinance at a fascinating recent panel at the Clinton Global Initiative conference.

The main difference between the two has less to do with whether microfinance should be for profit or not, but who the profits should accrue to. While Akula makes a convincing case why there is no conflict in maximising returns for shareholders and offering the best possible deal to borrowers, Yunus believes that, in the long run, the financial returns focused investors in SKS would force the company to move away from doing what's best for the poor.

You can view the full video of the session here

For more on this debate, check out the post on David Roodman's Microfinance Open Book Blog here

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports.

Profile of weather forecasting firm SkyMet

Outlook Business has a profile of private weather forecasting company SkyMet.
Media outfits, such as Hindustan Times, Zee TV, Aaj Tak, The Hindu, Times Now and Mint (subscribe) to its services....“(Nokia) wanted a reliable weather forecast supplier for farmers,” recalls Singh. SkyMet was given the job of forecasting the weather for 3,000 tehsils across India. This meany redoing infrastructure and investing more to generate forecasts for each region. Soon, an even more engaging client was knocking at its doors. Thomson Reuters wanted forecasts right down to the village level for its Market Light service that provides localised information on the weather, market prices, commodity news and advisory tips on crops.

SkyMet, which operates on a subscription-driven model, has been growing steadily over the years. Today, it has 22 clients and its headcount has grown from three people at launch to 44 experts now. Turnover, which was a mere Rs 18 lakh in 2003, rose to Rs 2 crore in FY10. The enterprise has remained profitable throughout its journey.

Since 2006, the company has been expanding steadily into other sectors. The power portfolio now accounts for 20% of its annual revenues. Its weather forecasts help power utilities plan their energy purchases from power generators. Clients include Reliance Energy, North Delhi Power, Power Grid Corporation and Power Trading Corporation.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

September 24, 2010

Why an interest rate cap will kill microfinance

The proposal to cap interest rates charged by MFIs (at 24%) - via a finance ministry letter to PSU banks - has caused significant irritation to the industry and its investors. From an article in the Mint:
The smaller MFIs could go bankrupt, according to Sumir Chadha, managing director of Sequoia Capital India Advisors Pvt. Ltd—a private equity fund that supports microfinance lenders. “This reminds me of the price-control era, which ended more than 20 years ago,” he said.

...At least one in three MFIs in India are loss-making, and most of them are start-ups with a portfolio of under Rs.5 crore, shows a recent study by ACCESS Development Services, a not-for-profit organization that provides consulting services to MFIs.

...“The cost of operation in remote areas is high for all, and unless some concessions are given to smaller MFIs and those that operate in remote areas, the idea of financial inclusion through MFIs would be defeated,” said Mahajan


Vineet Rai of social VC firm Aavishkaar saw something like this coming. Extract from his speech at a Business Today roundtable:
We were supposed to be the do-gooders... even though we were charging interest rates of 40 per cent. Today, while we reach millions of people, we are perceived as fleecing the poor at rates of 28 per cent. The moment you start measuring in terms of billion-dollar valuations, you begin to look very bad. So I think we will lose the battle on the management of perception rather than the reality. It is not true that the interest rates have not fallen. They have.

Now, Economic Times columnist Swaminathan Aiyar, who is also an investor in a few microfinance companies, makes an elaborate argument against such a cap:
Charging poor people 30% interest sounds terrible. Resentment is building up after the IPO of SKS Microfinance, India’s biggest MFI. Its shares were launched at Rs 1,000 and have soared to Rs 1,400. Other MFIs are queuing up for fresh IPOs. A sector that started as a service to the poor now looks a moneyspinner , attracting private equity funds with no social aims whatsoever. Some MFIs have a return on assets of 5-6 %, much higher than banks. Is this unwarranted loot? Not at all, say the poor. They clamour for more such loans, and repayment rates exceed 99%, suggesting the interest rates are affordable.

...MFI lending rates in India are lower than in Mexico or South Africa. Compartamos in Mexico lends at up to 100%, yet borrowers repay. How so? An annual rate of interest is meaningless for businesses with a daily churn. A vegetable vendor borrows Rs 300 to buy vegetables wholesale, selling these for Rs 450. Even if he pays 100% per year interest on his loan of Rs 300, it amounts to just 90 paise/day, a negligible portion of his profits. Many poor Indians use MFI loans to pay off moneylenders. An MFI loan at 30% to pay off a moneylender’s loan at 100% is a blessing.

...With such diverse conditions for different MFIs, a cap of 24% is a blunt, arbitrary instrument. Retained profits are vital for MFI expansion, but will disappear with caps, which will also bankrupt small, new MFIs. Caps will discourage MFIs from entering remote areas most in need of inclusive finance. A cap will benefit the haves (who already get microcredit) at the expense of have-nots.
Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

Microfinance: The Road Ahead

Vineet Rai of social VC firm Aavishkaar makes several interesting points as part of a Business Today roundtable on the sector.
One tipping point was in 2004-05 when the partnership model by ICICI Bank showed that scale can be achieved in microfinance. (ICICI Bank would forge an alliance with an MFI, which would identify, train and promote the clients and ICICI Bank would finance the clients directly.) This made the sector interesting — at least for the debt providers at that time. The second tipping point was Vikram Akula (of SKS Microfinance) standing up and saying I can raise capital and actually scale up.... Basically what he showed was that you can scale up rapidly and become fairly large.

...There are a few things you need to look at today. You need capital, which brings with it the issue of valuation and ownership and greed. We started with client acquisition as a model. Now the investor question is client stickiness, and differentiation has become the buzzword. Nobody wants to invest in another Grameen model and it is not because that model is wrong but it is that if you are going to be a single product MFI then the scope for value creation is almost insignificant. Client stickiness can be done in multiple ways. Basix does that by providing livelihood and services, Equitas does that by providing rice and oil. When push comes to shove, who will the client drop first? That becomes an important ingredient in our due diligence.

Second, if you visit the websites of the top 10 MFIs, everyone says we are removing poverty but during the discussions here, it seems to be all about valuation and capital. While there is nothing wrong with valuation and capital, it is just that post-2005 we have come to clearly articulate what we are. We have still not got away from the realities of how we started in 1995. We were supposed to be the do-gooders... even though we were charging interest rates of 40 per cent. Today, while we reach millions of people, we are perceived as fleecing the poor at rates of 28 per cent. The moment you start measuring in terms of billion-dollar valuations, you begin to look very bad. So I think we will lose the battle on the management of perception rather than the reality. It is not true that the interest rates have not fallen. They have.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

September 22, 2010

Deal Alert: Nexus Ventures invests in cloud computing firm Arayaka Networks' $14-M first round

Edited excerpts from the press release:

Aryaka Networks, a provider of cloud-based application acceleration and WAN optimization solution, has raised $14 million in Series A funding from Trinity Ventures, Mohr Davidow Ventures, Nexus Venture Partners and Stanford University. Naren Gupta of Nexus Ventures has joined the company's board.

Founded in November 2008 by Ajit Gupta (President & CEO) and Ashwath Nagaraj (VP of Engineering), Aryaka Networks, Inc. delivers cloud-based application acceleration and WAN optimization with true business results. The company is headquartered in Milpitas, California with offices in Bangalore, India. Key advantages of the Aryaka solution include a secure, scalable and reliable application acceleration and WAN optimization platform as a service, rapid deployment, ease of integration, complete visibility and a significantly lower total cost of ownership.

September 16, 2010

Forbest India profile of Tech Support BPO iYogi

Forbes India has a profile of the VC-backed remote tech support company.

..a small but growing number of Americans like Smith are prepared to bypass US companies and directly hire tech-support in India. Smith (name changed) belongs to the baby-boomer generation that grew up without computers or mobile phones. Like many of that generation, she has the money to buy the latest gadgets but is not comfortable experimenting with them....

...iYogi also differs from outsourcing companies in some crucial ways. For one, you won’t find a technician adopting a fake accent while handling customer calls. “We were clear from day one on our goal to build a proud Indian company that offers tech support service with our true identity revealed upfront,” says Challu. “Using fake names and impersonating someone you are not… is a flawed business model.” Along the way, the company has evolved the mindset of a fast-moving consumer goods company.

...Now the moment a customer purchases a laptop from www.walmart.com, he is sent a co-branded plastic card along with a letter offering a free service to move old data to the new machine, set up a wireless connection etc. When the customer calls, iYogi will provide the required service but also pitch its annual subscriptions.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

September 14, 2010

Making Money in the Alternative Energy Market

Extract from our partner event Press Release):

The key to investing in the alternative energy market is getting in quickly, identifying where the best yields can come from and securing those sites fast, says Timothy Nelson, Head of Carbon and Sustainability Strategy at AGL Energy, in this interview. A speaker at the marcus evans APAC Alternative Investments Summit 2010 taking place in Singapore, 27 - 29 October, Nelson highlights the alternative energy investment opportunities, and why adopting a long-term view is essential for success.

How is the alternative energy market attractive to investors?

Timothy Nelson: Last year USD 250 billion was spent on power generation equipment globally, with more than half of that on alternative energy sources such as wind, hydro and solar. Growth rates in these industries are between 50 and 120 per cent annually.

Consumers and government policies around the world are shifting. Policies are being implemented to increase the proportion of renewable energies, with several energy-intensive projects in Asia being constructed with a 100 per cent renewable energy requirement.

Where can investors make money in this asset class?


Timothy Nelson: The opportunities in the alternative energy market lie across the supply chain. If you look at the production of equipment, more investments need to be made. China for instance is seeing a boom in the volume of production capacity for solar photovoltaic energy.

The early mover advantage is where investors can increase their returns. The best sites available for renewable energy will be taken up progressively; with wind for example, the higher the wind speed, the better the output. The key is really getting in quickly. Identify early on where the best yields are going to come from, and secure those sites fast whether you are a direct or indirect investor.

What developments will influence the alternative class?


Timothy Nelson: There are two primary drivers. Firstly, government policy; Australia has recently passed a legislation of a 20 per cent renewable energy target, and China is a key driver of renewable investment through mandated policies around portfolio standards.

The second change revolves around technology; as we get more volume through solar photovoltaic production, prices will come down and the opportunities for retailing solar to customers will increase. Thus, the opportunities lie at both ends of the supply chain.

What long-term strategies would you recommend to investors?

Timothy Nelson: Investors need to adopt a long-term view, as the types of infrastructure in energy have long-term asset lives. Energy production systems have an asset life of at least a decade. In the case of a coal or gas fired power station, or a wind turbine, their lifespan is also over a decade. The absolute key to successfully analysing what the opportunities might be is to take that long-term view.

About the APAC Alternative Investments Summit 2010

This unique forum will take place at the Marina Bay Sands, Singapore, 27 - 29 October 2010. Offering much more than any conference, exhibition or trade show, this exclusive meeting will bring together esteemed industry thought leaders and solution providers to a highly focused and interactive networking event. The summit includes presentations on the latest investment trends, optimal asset allocation and portfolio diversification strategies for competitive advantage.

For more information please send an email to news@marcusevanscy.com or visit the event website at http://www.apacaisummit.com/media_vi_tn

September 09, 2010

Deal Alert: Paracor India exits PL Shipping & Logistics via strategic sale



Paracor India Investments, Mauritius has sold its stake in PL Shipping & Logistics via a strategic sale to Switzerland-based M+R Spedag Group. Paracor had a controlling stake in PL Shipping which it acquired in February 2005. All minority shareholders (except management) have exited along with Paracor via the all cash deal.

Chennai-based law firm King & Partridge advised the sellers, while Mumbai-based law firm Nishith Desai Associates advised M+R Spedag.

September 04, 2010

M&A Then and Now: What's Changed

Extract from an article in Economic Times by RPG Group's Harsh Goenka.
Fast forward to the current era. We have learnt a lot over the decades and governed by our own experience , are now focusing more on the technology quotient, growth potential and management expertise of the target, rather than the traditional levers of cash-rich and synergy benefits. Yet, despite access to a far more efficient investment banking network and the numerous sources of information that are available today, it is still not easy to find the right company to acquire. The number of cases we end up rejecting at stage one are phenomenal! More often than not, we are left with only one or two suitable projects to pursue. And I find myself still relying on instinct to some degree and still doing my back-of-the-envelope estimations.

...There is a pattern that I sense emerging as far as Indian companies are concerned. M&As are likely to be limited to certain sectors in the next3-5 years as cheap and easy finance will be hard to come by, whether through private equity or by leveraging. One is more likely to witness mid-size IT firms buying out selectively ; manufacturing companies taking over quality manufacturing operations in Europe, as they are available cheap due to competition and depreciation of the euro. These will be in capital goods, power equipment, engineering and auto ancillaries sectors.

There will also be a rush for mining rights in Africa for its zinc, copper and coal, and Africa will be the big hunting ground for companies around the world with its huge market opportunities and its massive land bank. Power companies will be eager to secure coal linkages wherever they are available for cheap. Companies such as Godrej, Dabur and Marico will be very active in their respective sectors like haircare, ayurvedic and personal care respectively. Pharma companies, the traditional outward-looking and M&A centric lot, will become more inward-looking and may look to manufacturing plants in China in order to gain access to local markets.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in