Get ready for a $10 billion private equity avalanche

With the influx of liquidity in the world, private equity funds have stepped in to meet the needs of large corporates, who are writing ever-larger cheques. Investment bankers said such deals worth about $10 billion are likely to be done in the next nine months.

This is a departure from the recent trend seen two years ago when buyout firms in India bet their money and expertise to help startups and privately held firms take on established companies or disrupt the market. Gave. Large and diversified business conglomerates, including Tata, Adani and Aditya Birla, are seeking significant equity investments from large-scale PE firms in a trend started by Asia’s richest man Mukesh Ambani. Ambani’s Reliance Industries has raised $15 billion from strategic and PE firms in the past year for its relatively new business units including digital, telecom, retail.

“Large corporates have realized that running a company with PE investments against a fractional stake is much better than running a company with huge debt in the books,” said Gopal Agarwal, managing director and head of investment banking. Edelweiss. “Having less debt helps the company’s stock outperform, and it reflects well on the promoters, enhances the goodwill of the company and helps it achieve better valuations.”

Most large corporates are using the money raised from PE to either limit their reliance on borrowing or to capitalize on their new businesses, perhaps a take on the dangers of going on a lending binge from the past. taking lessons. Promoters of several indebted corporates, including Essar Steel India Ltd., Bhushan Steel Ltd., Bhushan Power and Steel Ltd., Reliance Communications Ltd. and Videocon Industries, have handed over control of their companies. The developments have prompted companies to lean on external equity capital.

Key deals in the pipeline include Tata Group’s own Super App business, TataNew; and Aditya Birla Group, Adani Enterprises, Tata Power etc.

Tata group, which has a debt of more than ₹61,000 crores, recently raised ₹7,500 crore from Rise Climate and Abu Dhabi’s ADQ, and is looking to use the capital to accelerate the growth of its electric vehicle (EV) business.

Buyout firms are bullish on the EV business because of its growth potential. According to consulting firm AlixPartners, EV sales could account for about a quarter of total global vehicle sales by 2030, up from around 2% now.

Soon after closing the deal for its EV business, Tata Group’s power business – Tata Power – has also begun talks to raise at least $500 million from a planned initial public offering of its renewable energy unit. , as The Economic Times reported earlier this month. A Tata Power spokesperson did not immediately respond to a text message seeking comment.

PEs globally are particularly keen to fund sustainable businesses, and Tata Power’s renewables unit is one of the largest renewable energy businesses in India, with an operating capacity of 2.6GW, including wind and solar.

Adani Enterprises Ltd., the flagship arm of the Adani Group, is in talks with a number of investors, including PE, to raise about $2 billion to make Adani Enterprises a ‘sustainable’ energy major, two people familiar with the development. Emails sent to Adani Enterprises spokesperson did not elicit any response.

The Aditya Birla Group is also looking to sell stake in some businesses to PE.

Major PE companies including TPG Capital, Apollo Global and Carlyle Group were in talks with Vodafone Idea Ltd for an investment of around $1 billion in the company’s optic fiber and data center assets.

“Using large investments from PE players allows for bolt-on acquisition opportunities and allows it to be planned for the long term, helping in overall value addition for all stakeholders including promoters and minority shareholders. Therefore, large corporates are more eager than ever to sell their partial stake in established companies to PEs. Third, large corporates have realized that it is no longer necessary to maintain a large stake or too much control in a company. They are comfortable partnering with large well-known global investors with a portion of their holdings where private equity fits in quite well,” said Agarwal.

Aggarwal said that another major reason for the increase in PE activity is that many new age internet-based businesses are growing rapidly.

“New e-commerce opportunities are emerging in the last 2-3 years, both in the retail and commercial sectors, which have helped many startups register phenomenal growth. All these businesses are supported by outside investors. Few startups have become as big as the big listed companies. Big corporates don’t want to miss the bus and take command in these new-age businesses either through acquisitions or organic routes. Therefore, when large corporations are entering new-age businesses, due to their goodwill and past track record of building successful businesses, they are attracting more PE investments than smaller contenders,” Agarwal said.

According to global financial data provider Refinitiv, since April last year, PE has invested nearly $60 billion through over 1,700 deals in hundreds of Indian companies, including companies owned by large corporates and listed positions.

“PEs are now equipped with a much larger fund corpus than ever before, and after securing several good exits over the years, PEs are more excited to invest in India,” Agarwal said.