Indian businesses ahead of global peers in preference for PE: Report

Some of the largest family-owned businesses in India, including Mukesh Ambani’s Reliance Industries Ltd and Sunil Mittal’s Airtel, have tied up with PE firms to raise growth capital. Photo: iStock

About 56% of family-owned businesses in India will seek private equity funding as they look to grow their businesses, a new survey found. Globally, just 39% such businesses are willing to partner PE funds, it added.

According to India’s Family Business Survey 2019 by audit and consulting firm PwC, 29% of Indian businesses were currently sourcing funds from PE and venture capital firms, against just 16% worldwide. About 25% of Indian family businesses were about to start using PE capital, the report said.

PwC interviewed 2,953 family businesses globally for the survey, including 106 from India.

“Historically, family businesses in India had generally been reluctant to raise funds from private equity. However, as family businesses look at growth, one of the avenues being explored increasingly, is funding via PE—which often serve as a stepping stone towards listing of businesses. We have seen numerous instances where PE funds handhold private businesses in their transition from private to public. This also works for PE funds as it gives them exit at a multiple of their initial investment,” said Ganesh Raju, leader – entrepreneurial and private businesses, PwC India.

Raju added that the professionalization and outlook of PE funds, which include monitoring short-term returns as well, complements the long-term view that family business owners take. “This is a trend which we feel will only grow in the future as Indian businesses buoyed by economic growth seek expansion in new markets and territories. This apart, private equity funds are also engaging with family businesses aggressively.”

Given that 56% of Indian family business owners said that they will be looking at PE in the future as against 29% now, we will witness significant transactions involving private equity in family businesses, Raju added.

According to the survey, the capital sourced from PE/VC firms by family-led businesses was equal to the funding they received from capital markets.

Bank lending or credit lines and internal sources such as cash flows and family funds, however, remained the top two sources of capital in-use at 81% and 71%, respectively.

While 58% family entrepreneurs considered listing all or part of their business on stock exchanges for raising capital, only 17% said they would consider getting funds from other business families.

The survey highlights the growing significance of private equity capital for Indian businesses.

Over the last few years, private equity and venture capital investors have invested billions of dollars in Indian companies, either in minority investments in family-owned businesses or making outright purchases of such businesses.

Some of the largest family-owned businesses in India, including Mukesh Ambani’s Reliance Industries Ltd and Sunil Mittal’s Airtel, have tied up with PE firms to raise growth capital and to deleverage their group balance sheets.

In March, Reliance Industries Ltd sold a 100% equity interest in Pipeline Infrastructure Pvt. Ltd (PIPL), which owns East West gas pipelines, to Canada-based Brookfield Asset Management’s India Infrastructure Investment Trust (InvIT), for 13,000 crore.

In 2017, Mittal’s Bharti group had sold a 20% stake in its direct-to-home business to private equity firm Warburg Pincus for around $350 million.

While Intas Pharmaceuticals and Mankind Pharmaceuticals have raised capital from homegrown private equity firm ChrysCapital, snack maker Bikaji Foods International raised funds from PE firm Lighthouse.


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