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July 19, 2011

Deal Alert: StanChart PE invests $56-M in RJ Corp beverage unit

From the Press Release:

Varun Beverages (International) Limited (VBIL) has concluded a US$56 million private equity financing with Standard Chartered Private Equity Limited (SCPE). The funds would be used to accelerate VBIL’s growth in its beverages business in India and overseas. VBIL is promoted by the RJ Corp group which comprises diversified business interests ranging from beverages, fast food restaurants, ice creams & dairy products, breweries, education, health care and hospitality. VBIL is engaged in the business of bottling, distribution and marketing of soft drink beverages, sold under the trade marks owned by PepsiCo Inc., USA. VBIL, through itself and its subsidiaries, operates in India, Sri Lanka, Nepal and Morocco.

Commenting on the development, Mr Ravi K Jaipuria, Chairman, VBIL, said: "To convert the huge opportunity of growth, penetration and enhanced territories domestically and internationally into reality, we need to build, year after year, large capacities, involving huge capital expenditure. Induction of SCPE in group's core business of beverage shall help grow this business faster. "

Raj Gandhi President and Group (CFO) on the occasion said: "The business model is now totally hedged through operations at multiple geographies and induction of SCPE provides new opportunity to leverage the financials, expand at much faster pace and bring economies of scale."

Nainesh Jaisingh, Managing Director and Global Co-Head of SCPE said “We are extremely pleased to partner with the RJ Corp Group. The Group is a long standing client of Standard Chartered Bank and there exists significant overlap between our geographic footprints. With Pepsi’s backing, VBIL is already a leader in the beverage market, and we look forward to a long term association with the Group and the Company.”

Udai Dhawan, Director at SCPE who will be joining the VBIL Board said “The current low per capita consumption of soft drinks in India offers tremendous opportunity for VBIL. With over four decades of experience in the beverage business, a demonstrated track record and a highly experienced management team, the Company is uniquely positioned to capture this opportunity. The Company’s growth may further be aided through inorganic means. We are very excited to be a part of the Company’s next stage of expansion”.

The beverages operations were first started by the group in the 1960s and are growing rapidly after collaborating with Pepsico since their entry into India in 1991.

Other RJ Corp Busineses
The group's fastest growing multiple format restaurant business company Devyani International Ltd. partners international brands like Pizza Huts, KFC and Costa Coffee. Outside of India, it has presence in Nepal and Nigeria.

The group's Cream Bell ice cream operations are no more limited to only India or to a single product. It has its presence in Uganda and Kenya and operates into a complete range of dairy products. It recently started its third manufacturing facility to increase its capacity by 50 per cent at Kosi in Uttar Pradesh, after Baddi in Himachal and Goa. Its ice cream brand Cream Bell has won many awards for its quality and has a large range of exotic products.

The group's JV with ABInbev to brew beer is also spreading its presence in all the large beer consuming States through its brewing facilities at Hyderabad, Bangalore, Pune. It has ever-growing stem cells banking facility covering stem cells banking through-out India.

About Standard Chartered

Standard Chartered Private Equity Limited (SCPE) is the private equity arm of Standard Chartered Bank and has invested over US $ 2 billion in mid to late stage companies in need of expansion capital or acquisition finance and in management buy-outs.

Standard Chartered Bank is India’s largest international bank with 94 branches in 37 cities, a combined customer base of around 2 million retail customers and more than 2,000 corporate and institutional relationships. Key businesses comprise Consumer Banking, including deposits, loans, wealth management, private banking and SME banking; and Wholesale Banking, which includes cash transaction banking, treasury, corporate finance and custody services. For more information, visit www.standardchartered.co.in

July 15, 2011

New Wave of Life Sciences Firms

Economic Times has profiles of 3 new VC-backed Life sciences companies:

Cellworks Research

FOUNDED: 2005
INVESTOR: Artiman Ventures

ACTIVITY: Drug discovery using a proprietary computer simulation platform to find new uses for old drugs in inflammation and cancer

POTENTIAL REVENUE STREAMS: Licensing drugs for development and marketing,selling its proprietary green chemistry technology to various industries

Vyome Biosciences
FOUNDED: 2010

ACTIVITY: Researching drugs for wound healing,skin pigmentation,finding new uses for old drugs in dandruff and acne treatments

INVESTOR: Navam Capital

POTENTIAL REVENUE STREAMS: Licensing drugs for development and marketing to larger companies

Mitra Biotech.

FOUNDED: 2009

INVESTOR: Kitven,Accel Partners,India Innovation Fund

ACTIVITY: Diagnostics to personalise cancer medicine in partnership with hospitals and drug companies

POTENTIAL REVENUE STREAMS: Offering testing services to cancer hospitals to match drugs to patients,partnering drug companies during clinical trials


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

Profile of P2P Microlending enabler Micrograam

Business Today has a profile of the latest Indian adaptation of the Kiva.org model that enables individuals lend to the poor.

Micrograam, set up in February 2010 by Rangan Varadan, a former head of banking and capital market verticals at Infosys, has devised an innovative means of extending credit to the poor by creating a portal that brings investors and borrowers together, allowing them to work out their own deals. Micrograam's initiative has been a hit: in just 16 months it has found 270 investors and helped disburse loans of around Rs 87 lakh to 563 borrowers. The timing has helped too, since the microcredit sector is currently in crisis, and loans for the poor have dried up.

...Restricting its activities to Tamil Nadu and Karnataka, the Bangalore-based Micrograam has so far roped in 33 NGOs which identify borrowers. It puts up a list of prospective borrowers on its portal, along with each one's profile, the amount he needs and the maximum interest he can afford.

..."We do not want charity. We are looking for individuals who believe in social lending, not charity," he says. Around 80 per cent of his investors so far have been wealthy individuals rather than company employees, but Varadan is not fazed. The fact that Micrograam is not yet profitable does not worry him either. "Once we gather scale, we will sustain," he says. "This is how this model is meant to be." He has extremely ambitious targets. "We intend to get 16,000 investors and help disburse loans of Rs 25 crore in the next two years," he says.

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

July 13, 2011

Fund Manager Interview: Nainesh Jaisingh of StanChart Private Equity


After focusing substantially on exits in 2010 (when it successfully exited its investments in Mahindra Finance and ABG Shipyard), StanChart PE has announced four new investments in the first half of 2011 (in GMR Airports, Bush Foods, Privi Organics and Innoventive Industries). Three of its other portfolio companies – Endurance Technologies, Powerica and Intergloble Technology - are on the IPO path.

Venture Intelligence spoke to Nainesh Jaisingh, Managing Director of Standard Chartered Private Equity, who heads the bank’s proprietary PE investments team in India on the firm’s recent moves and his views on the current PE investing landscape in India.

This interview first appeared in the latest issue of the Venture Intelligence India Private Equity Roundup Report.

Venture Intelligence: In 2010, StanChart PE announced only one investment - the syndicated $217-M round in Coffee Day Resorts – but, this year, you have already announced four new ones. What’s changed in your outlook?

Nainesh Jaisingh:
The sort of activity you see from us is function of what‘s going on in the broader markets. Based on the deal environment and the available opportunities, we close new transactions and focus on making good exits at the right time. For instance, in the second half of 2010, we exited $150-175 million worth in just one company, Mahindra Finance, and that investment did very well for us. Similarly with ABG Shipyard. We also sold a large portion of our holding in ABG Shipyard in the second half of 2010 when the markets were looking good. Now, that the stock market is somewhat tentative, it’s a good time to make new investments in the capital requirements of companies. Hence the accelerated pace in investments.

The good part about our structure is that there is no country wise allocation. This way, you are able to exercise the discipline of investing in a country when it is attractive on its own merits and be able to exit those investments when the country is overpriced and not worry about having some committed capital to put out there.

VI: What is your sweet spot in terms of ticket size?

NJ:
From having a $100 million fund for India in the early part of the decade - which was considered largish – we are deploying that kind of capital in a single transaction today! Clearly, the deal sizes in the country have grown and, in my view, will continue to grow. Ideally, we would look at something around $50 million or more. But, there are opportunities across the spectrum and many young companies might need less capital, but the potential for growth is very large. Which is why recently, we have set up a dedicated mezzanine fund to do quasi-equity structures targeting returns of just under 20% (as opposed to pure Private Equity where returns of at least 25% is targeted). This way, using various capital structures and deal sizes, we can target opportunities at all deal sizes.

VI: What sectors appeal the most to you currently?

NJ:
As a sector agnostic fund we do not have any sectors that we will not look at (minus Real Estate which is handled by a different Asia-wide team). There are several sectors within the two broad themes of Infrastructure and Consumer which are obviously interesting, but a lot of them are well mapped by the PE industry – so, the challenge is to find the right place in the value chain also ensuring that it is not over-valued owing to competitive pressure. We also need to look at what sort of value we can bring to that company because the days of putting in the money and waiting for the public markets to rerate the company are gone. Now, we need to work closely with the companies to help them execute on their 3-5 year strategic plans.

VI: What is your firm’s view on investing in the listed and unlisted universe?

NJ:
We will do all kinds of transactions – listed or unlisted, primary or secondary does not matter much as long as it meets the criteria of having a good business model and we have the engagement and influence with management. . In fact, we have also invested in unconventional opportunities which have done very well for us.

VI: There are a few public market bank stocks where StanChart PE has invested (Karur Vysya Bank and IOB in 2009; Federal Bank in 2007.) Are these done by your team?

NJ:
Yes. But these investments come out of a separate bucket and were opportunistic in nature.

VI: In some of your earlier investments like Endurance Technologies (an auto components firm), StanChart was actively involved in their overseas acquisitions. Post financial crisis, do you actively assist in cross-border acquisitions and how does the parent get involved?

NJ:
While not necessarily always on acquisitions, we actively help the portfolio companies relook at their strategies. For instance, at Powerica (a power generator maker), their core business was throwing off surplus cash and we worked actively with them in strategizing and helping deploy that surplus in the new area of wind power. This is already working well and is set to significant value to the company in the long term.

The Bank of course has a strong acquisition financing business and that expertise is available to be leveraged based on the fit for the portfolio company and the relevant part of the bank.

VI: How does India compare vis-a-vis China in your portfolio?

NJ:
While the size of our portfolio in both countries is roughly the same, the number of companies of scale which are not yet listed is quite large in China, making it a good pool for Private Equity investors to fish in. The market there is also less competitive in terms of the structuring and negotiations of transactions that happens in India (where promoters too tend to be very financially savvy).

VI: What is your reading of the fund raising environment for India/Asia-dedicated funds?

NJ:
Less than a decade ago, there were very few players in the Indian market. Investors from the West used to complain about how difficult it was to do PE-type transactions in Asia, let alone India. In 2005-06, once news spread about the big exit from Bharti-Airtel and a couple of other ones, the Indian market started getting rerated and the people started investing into the country very enthusiastically. But, if you talk to LPs today, they will tell you that most of their India portfolios have had indifferent returns and, in some cases, negative returns. That’s why we are seeing so much churn in the industry - fund teams splitting to pursue different models, etc.

In my reading, the best way to deliver is to by sticking to the top players in your target sectors, applying your strategy consistently in terms of working closely with portfolio companies and timing your entry and exit appropriately. Those things come only through seasoning and having a team that has been through cycles.

Fund Manager Interview: Mohan Kumar of Norwest



Venture Intelligence spoke to Mohan Kumar, Executive Director, Norwest Venture Partners India, on the firm’s recent investments in the VC segment. Kumar, who had earlier worked for over 18 years at companies like Motorola and Texas Instruments, has led NVP's recent investments into medical devices firm Perfint Healthcare, tablet PC-based education services firm iProf and China-headquartered Smartphones maker Borqs.

This interview first appeared in the latest issue of the Venture Intelligence India Venture Capital Report.


Venture Intelligence: In recent months, we’ve noticed that Norwest is once again active in the VC segment with investments into companies like iProf, Komli, Quikr and Perfint. What is driving this?

Mohan Kumar:
NVP’s DNA has always been venture type deals. About 2 years back we had added two segments - financial services and infrastructure - where we started doing late stage deal with large size cheques. In Technology, E-Commerce, Med tech, Healthcare and Education, we continue to focus on Venture and Growth opportunities. Here we may do an early stage deal at a $2-M investment or write a $20-30M cheque for a company needing growth capital.

VI: What attracted you to Perfint and iProf?

MK:
Healthcare is a sector we decided to invest in India with medical devices as the primary focus; we are also looking at diagnostic chains and specialty hospitals. So, Perfint was as a good fit for us. The company originally developed products for the healthcare services sector; then graduated to create their own proprietary robotic products. We have funded them for a specific robotic tool for cancer treatment, which is being developed in collaboration with doctors who have worked at Stanford/European Universities. The tool can be used to pierce a very small needle through the body to the point of cancer. Perfint’s device provides the ability to detect cancer at a very early stage, when the tumour is as small as 5-7 mm, at an affordable price. A lot of doctors are using it on trial basis. Commercial launch is expected next year.

iProf is primarily a technology play in the Education segment. What attracted us was, #1 how do you make learning more interesting and #2 is how do you solve the problem of teachers’ shortage. iProf’s solution is to attract the best teachers, record the teacher’s lectures and specific subjects and host it in the “cloud”, which the students can then purchase from iProf. Another interesting part is that, when the student signs up, they give him/her a tablet PC.

VI: Is Medical Devices a sector that Norwest is active in internationally?

MK:
Medical Devices is a sector that we first started to invest in India; now we are active in the US also.

VI: How is Norwest structured internally to handle VC-type opportunities differently from the PE-type ones (NSE, Asian Genco, etc.)?

MK:
We have 3 partners in India with Sohil Chand taking care of infrastructure deals like Asian Genco and Niren Shah who has a focus on E-Commerce and financial services. I focus on Technology, Medtech and Education. In case, an entrepreneur from Infrastructure or Financial Services approaches me directly, I will still have an initial look at it, and then pass it to the respective colleague. When a deal comes to any of us, we look at who is the best person suited to lead the deal based on their expertise and interest. Any one of us can do VC deals or late stage ones.

VI: Do you have a minimum ticket-size when it comes to VC-type investments?

MK:
We do not look at minimum ticket-size, but we do look at taking an at least 20% stake when we do venture deals.

VI: While in Perfint, Komli and Quikr, you have been a part of the follow-on rounds, in the case of iProf, you are a part of the first round. Is there a shift in your preference towards earlier stage deals?

MK:
When entrepreneurs approach us with an idea, we look at it and if we like it, we just go for it - be it Series A, B or C. When Perfint approached us and told us about their idea for cancer detection, we were impressed with the team, but it was definitely “a leap of faith”. Hence we look at the background of the entrepreneurs and see if they are capable of pulling it off.

VI: What is your view of the E-Commerce space where we have seen a flurry of deals recently?

MK:
Norwest has some early investments in E-Commerce including Yatra Online and Sulekha.com. It’s not that we are now staying away from E-commerce; but in the last 6-9 months, with the MakeMyTrip IPO acting as a catalyst, all the deals come with high valuation price tags. E-Commerce in India is about 3-5 years behind China, hence opportunities are still out there. This is very similar to what happened in the Mobile sector where India was about 5 years behind China in 2000 and now has caught up.

VI: Which sectors are the most appealing to you at this point?

MK:
One area we are very keen on is companies using cloud-based computing with tablets and smart phones as the user devices. iProf is a good example of this in the Education space. We believe this concept can be extend to Retail, Hospitals, Manufacturing, etc. and can disrupt the dynamics in their respective sectors.

We have also invested in a China-based Smartphone company called Borqs, which we have now brought to India. They make affordable ( under Rs 8000/- ) Android based Smartphones. They have an operation in Bangalore and will be launching their products in the domestic market in partnership with Indian mobile phone brands.

VI: As someone who comes with deep technology and operating background, how are you finding your role as a VC investor?

MK:
You obviously don’t want to run the day-to-day operations, but you can definitely bring in your prior knowledge in terms of growth strategies, customer acquisition, team management, etc. So, it’s a balance and I have found it very interesting to work with the types of companies that can benefit from my background. Personally I would be most excited in working with early stage companies and help them grow.

Fund Manager Interview: Vishakha Mulye of ICICI Venture


Venture Intelligence recently spoke to Vishakha Mulye, Managing Director & CEO of ICICI Venture Funds, on the firm’s recent investments and strategy going ahead.

This interview first appeared in the latest issue of the Venture Intelligence India Private Equity Roundup Report.

Venture Intelligence: In 2011, you have announced two significant-sized investments – in restaurants chain Devyani International and vocational education firm TeamLease Services. Can you tell us about them?

Vishakha Mulye:
Both were proprietary deals. Devyani (which runs KFC, Pizza Hut and Costa Coffee chains in various parts of India) was the outcome of existing relationships and our liking for the Quick Service Restaurant (QSR) space. As India’s GDP continues to grow, our belief is that the QSR kind of businesses - which I term as a New Generation businesses - will also witness a tremendous growth. In other countries, these kinds of businesses have shown 30-40% growth over a long period of time and our belief is that, one would see that kind of growth in India as well. The biggest challenge in this industry would be scale up and we believe the high-quality team that (the promoter) Mr. Ravi Jaipuria has built has the track record and ability to take on that challenge.

Coming to TeamLease, vocational training is something we are very excited about. While other parts of the industry also have great potential, in our view, the regulation needs to develop a little more before we, as an investor who deploys third party money, can take a bet. Vocational training is –still a fragmented industry as there are not many large and organized players but the sector has tremendous potential. The ability to do placements after the course is extremely important. For TeamLease, which is a leader in staffing services segment with several large corporate clients, vocational training and staffing services create a synergistic platform. Plus, the founding team of Manish Sabharwal, Ashok Reddy and Mohit Gupta come with a very strong track record.

In line with our interest in the education/training sector, we had also invested last year in People Combine which is an emerging leading player in the K-12 segment.

VI: What sectors, if any, are you staying away from?

VM:
Despite temporary blips, our economy will continue to be one of the fastest growing in the world and will be driven by domestic consumption. Riding on the same theme, we are also very keen on BFSI sectors where we have recently made investments in ING Vysya Bank (via their QIP issue) and last year we had invested in Star Health & Allied Insurance.

As a PE investor – given the need to exit within a certain timeframe - what we cannot manage is commodity risk. So, we will probably not focus on businesses that expose us to that kind of risk. Also, we would be cautious on investing in cross-border situations.

VI: Despite the success of VA Tech, RFCL and other buyouts, why haven’t you made any new buyouts?

VM:
Buyouts have always been 5-10% of the Indian PE market and will continue being so in the foreseeable future. Our investments are also reflective of the overall opportunity set in the Indian market which is still growth equity driven. Having said that, even within growth investments, we are not passive investors and have significant rights. We take board seats and actively participate in framing the strategies for our companies. This is probably more important than the percentage holding. But if there is an opportunity to do a buyout, we do not shy away as we have a strong track record in this segment also.

VI: Is I-Ven making a conscious move away from investing into listed companies?

VM:
QIP and Preferential Allotments are what we like or would do in the listed space. We do not go out and buy shares on the exchange. By and large, we will invest into unlisted companies which are now poised for growth and need capital to take them to the next level.

VI: In the first close of your latest fund (IAF Series 3), you had raised $400 million completely from domestic sources. What will be the final split among domestic and foreign sources in the final close?

VM:
We have raised about $400 million across multiple closings. When we started fund raising, the international market was not at its best health and we thought we would revisit after things settled down. Meanwhile, the targeted amount was raised in the domestic market itself. Domestic money has its own positive characteristics in that we can invest into sectors like insurance, etc. without constraints. We expect to have the final close shortly. Our international focus is currently on new initiatives in the Infrastructure and Special Situations areas. In case of the latter we have entered into an alliance with Apollo of US to explore opportunities in the Indian market.

VI: Will you be launching any new mezzanine type funds?

VM:
Mezzanine funds are indeed attractive from an investment perspective, but from a fund raising perspective, international investors cannot be approached due to regulatory issues. Domestic fund raising for mezzanine does not have a huge potential because people here either like to go in for plain equity or debt offerings.

However, we will continue to looking at this part of the capital structure going forward.

VI: What would you say are the key learnings from your first Real Estate fund?

VM:
Firstly, the choice of the counterparty (i.e., the developer partner) is extremely important. The second important thing is, it is always better to invest behind strong cash flows rather than making an asset bet. Both of these sit well with the residential side as we see good opportunities in that area especially in the metros and other big cities.

LP Interview: Sunil Gottipati of Princeton University



Sunil Gottipati is a Principal with Princeton University Investment Company (Princo), the agency responsible for the management of Princeton University’s over $14 billion endowment. Venture Intelligence recently spoke to Gottipati who is active in managing the endowment’s allocations to Private Equity, including in emerging markets like India and China.

This interview first appeared in the latest issue of the Venture Intelligence India Private Equity Roundup Quarterly Report.

Venture Intelligence: Can you give us an overview of Princo’s investments in Indian Private Equity/Venture Capital funds?

Sunil Gottipati:
It is important to highlight that the investment approach at Princo is predominantly bottom-up. While we have articulated a goal of increasing the percentage of the endowment that is invested in markets outside the US, implementation of this goal is dependent on us finding high-quality “foreign local” managers based outside the US, a task that is often challenging. We maintain close contact with each of our external managers and indeed, we have articulated a goal of being the best client that each of our managers has. To achieve this goal, we need to maintain a concentrated roster of relationships, so we tend to be extremely selective in adding new managers.

Historically, returns of the best managers have significantly exceeded those of the industry averages. Accordingly, we have always sought to concentrate the portfolio’s exposure with a select group of top-tier managers. Our goal in India, as elsewhere, has been to identify and partner with such managers. Our first investment in an India-dedicated fund was in 2004. We have invested with a handful of managers in the public equity, venture capital, and real estate asset classes that are based on the ground in India. In addition, we have global managers who invest in India. We have not invested with a buyout manager yet in India, but that is more a factor of us not finding the right manager to invest with.

VI: What would be your typical commitment per fund?

SG:
We don't necessarily have a target commitment range in mind. What we can hope to earn on an investment is more important than what we can deploy. We would like the returns from each investment to be meaningful for the endowment, we would like to be important investor for the manager, and we would also want to maintain a concentrated roster of relationships. Therefore, when we do invest in a fund, we tend to be among the larger investors. We also do not want to be too big an investor in a fund, so typically we stay below a third of the fund.

VI: How do returns from Indian PE/VC funds compare to those in other markets?

SG:
Returns from early stage Venture Capital in India have not been adequately high thus far compared to our experience in other markets. It might be because the end-markets in India for these startups are not large enough and the supporting infrastructure such as payment systems, telecom, and internet penetration are not developed enough to support early-stage venture capital investments. There are early signs that this could change going forward, so we are more hopeful about the next several years compared to the past 5-6 years.

VI: As an LP institution that invests in both countries, why do think we see so many IPOs by Chinese VC-backed companies (including in the US) compared to India?

SG:
That is only to be expected, since the Chinese economy is more than twice as big as India's, and perhaps as a result the Chinese startups tend to achieve scale much faster. Telecom and Internet penetration is much greater in China compared to India. The recent IPO of MakeMyTrip.com is probably a good start, and I suspect there will be many more IPOs from Indian venture-backed companies over the next several years.

VI: What is your view of corporate houses floating PE funds?

SG:
We do not invest with corporate-backed funds, as there is substantial scope for conflicts of interest. Invariably, the corporate houses tout the benefits from scale and network, but these advantages, if any, are almost always dwarfed by the negatives. We only partner with firms that are employee-owned and where the fund economics (i.e., carried interest and management fees) flow solely to the employees.

VI: Would you invest in first-time private equity/venture capital funds?

SG:
Yes, very often, and that is a significant piece of our activity. We are often approached by exceptionally talented individuals, who may or may not have previous investing track record, but often with a strong operating background. We often work with such first time managers to help them think through structuring the fund and make introductions to likeminded LPs.

VI: Would you re-invest into the second funds by VC firms that have not yet started to show any exits?

SG:
We don't necessarily focus on exits as a metric of performance, but we try to understand how the portfolio companies are growing. We want to assess the probability for at least some of the companies to grow into large successful businesses over time, although admittedly this is not an easy task. Often the best businesses take time to mature, so you do not want your managers to force an exit before the time is right.

VI: Do you invest in Distressed Debt and Real Estate?

SG:
We do. It is particularly hard to find high-quality Real Estate managers in the emerging markets, and India is no exception. Of particular concern for us is the pervasive emphasis on the short term, a disregard for downside scenarios, and the heightened scope for unethical/illegal business practices.

VI: What would be the top one or two items in your due diligence process?

SG:
Out of the many things, one thing I would really focus on is the integrity of the manager, especially in emerging markets. We make a lot of reference calls and talk to a lot of people. We spend a lot of time understanding the motivations and the backgrounds of the managers. We focus relatively less on headline performance metrics, but we try to understand the investment and management processes of the managers. In emerging markets, we also look for managers that are flexible and can adapt to fast-evolving market conditions.

VI: What are the key challenges before Indian PE managers?

SG:
For the venture capital managers, a key challenge seems to be that the market size and infrastructure bottlenecks seem to limit the rate at which their portfolio companies can scale. For late stage investors, valuations often seem elevated, especially as even small private companies seem to be capable of accessing the public markets, and hence at times the public markets seem to offer better bargains than the private markets.

July 12, 2011

PE firms continue to be bullish on Education investments

As the only industry in which investments continued to growth through the 2008-09 downturn, Private Equity & Venture Capital investors continue to be bullish about investing in Education companies, reveals a new report – the second edition of “Private Equity Pulse on Education” - from research firm Venture Intelligence, the leading provider of data and analysis on PE/VC and M&A activity in India,.

Nitish Poddar and Aneesh Vijayakar of KPMG set the tone for the report in an article highlighting the opportunities and challenges facing Private Equity investors in Education. They point out how the demand-supply gap, higher spending by consumers, superior quality perception of private sector offerings and government reforms, are set to drive growth of the industry. They highlight regulatory hurdles, need for complex structuring, lack of exit routes and shortage of management & faculty talent as key constraints for making investments. According to data from Venture Intelligence, PE/VC investors have already invested $93 million across 10 Education companies so far in 2011 led by the Rs.100 crore ($22 million) investment in vocational training and placement firm Teamlease Services.

In a survey conducted for the report among Private Equity & Venture Capital firms, the investors chose Vocational Education and Test Preparation companies as among their favourite sectors within the industry. These were followed closely by Educational Technology and Tutorial firms. Investors participating in the survey were split almost evenly on the question of investing in highly regulated sectors. The optimistic investors feel that K-12 especially, given the supply-demand gap, is very attractive in terms of scalability of business potential and its ability to absorb significant amounts of capital. The naysayers feel the lack of certainty in the government’s approach to de-regulation poses too great a risk to PE investments in these sectors.

Karan Khemka of The Parthenon Group emphasizes how, given the scale and logistical complexity of the market, K-12 businesses need solid planning targeting geographies and price points to support rapid and profitable growth. He advises investors to choose their markets cautiously and after careful data-driven analysis. Abhishek Sharman of India Equity Partners makes a detailed case for why the timing is now appropriate to create businesses with large scale in the vocational segment. He also highlights the key factors that will determine success of such ventures.

In their article, Siddharth Raja, Neela Badami and Sindhushri Badarinath of law firm Narasappa, Doraswamy and Raja, provide an overview of the constitutional and regulatory frameworks governing the sector and the challenges they throw up for PE investments. The authors also outline the innovative structures being used by investors to work around the regulatory bottlenecks in the formal education sectors.

The report can be downloaded from http://www.ventureintelligence.in/pepulse_edu.htm

Deal Alert: Nexus Ventures-backed Cloud.com acquired by Citrix

Citrix Systems has acquired Nexus Ventures-backed Cloud.com, an US-based provider of software infrastructure platforms for cloud providers. The company’s CloudStack product line helps providers deploy and manage simple, cost-effective cloud services that are scalable, secure and open.

From the Venture Intelligence PE Deal database: Nexus first invested in Cloud.com (then called VMOps) in Aug 2009 and reinvested as part of the $11-M second round funding in May 2010. The other investors in the company included Index Ventures and Redpoint Ventures.

The deal represents the third exit by Nexus in the last 12 months Previously, online classifieds website OLX was acquired by Napsters late last year, while Open source Web-conferencing company Dimdim was acquired by Salesforce.com earlier this year.

For the detailed press release on the deal, please visit http://citrix.com/English/NE/news/news.asp?newsID=2313930

July 06, 2011

Deal Alert: NSL Sugar acquires Jay Mahesh Sugar for Rs.231-Cr

Edited excerpts from the Advisor's Press Release:

NSL Sugars Limited, a part of the Nuziveedu Seeds group, has acquired 100% stake in Jay Mahesh Sugar Industries Limited (JMSIL), at an enterprise value of approximately Rs.231.2 crores. Prior to the transaction, JMSIL was a wholly owned subsidiary of Spray Engineering Devices Limited (SEDL), a specialist maker of sugar plant equipment. Anand Rathi Advisors was the exclusive advisor to SEDL Group for the transaction.

JMSIL's plant, located at Majalgaon in the Beed District of Maharashtra, has a crushing capacjavascript:void(0)ity of 5,000 TCD and a Co-Gen project of 30 MW along with Distillery plant of 100 KLPD is expected to be commissioned shortly. The Co-Gen project of JMSIL will be eligible for Carbon emission reduction. JMSIL was acquired by SEDL in September 2006 with an intention to showcase the latest equipments & energy efficient technologies developed by SEDL

Role of Anand Rathi:

* Preparing the business plan and marketing the deal opportunity with potential Investors / Buyers
* Negotiating the price and structure of the transaction, with the existing Investors and the Acquirer
* Managing the entire diligence process including legal, financial & technical due diligence & assisting in finalization of the closing documentation

About Spray Engineering Devices Limited:
Spray Engineering Devices Limited is a flagship company of SED Group, headquartered at Mohali (Chandigarh), is an Vision & Mission engineering Company, specifically focused on (re)designing and engineering of processes & equipments along with their
Strategic Intent automation ensuring highest energy efficiencies. Company offers integrated, cost-effective EPC solutions for Sugar and other process industries. New Vernon Private Equity limited & Klondike Investments Limited joined SEDL as financial partners in 2006.

About Anand Rathi Advisors Limited:
Anand Rathi Advisors Limited is a leading investment bank focused on the middle-market in India. ARAL is one of the group companies of Anand Rathi Group. Founded in 1994, Anand Rathi Group is a leading Indian financial services company and provides the entire range of financial and advisory services which include investment banking, wealth management, corporate advisory, brokerage & distribution of equities, commodities, mutual funds and insurance, structured products and is supported by powerful research teams. The Company has a pan India presence with over 300 offices (employing over 3500 professionals) as well as an international presence through offices in New York, Dubai, Hong Kong, Bangkok and Singapore. Anand Rathi Private Wealth adjudged Best Domestic Private Bank (India) by Asia Money Polls 2009, 2010 as well as 2011.

Further information about the Anand Rathi is available at www.rathi.com