Transcript Slide 1
Workshop on Investment Banking and Project
Finance
Private Equity
Strictly Private & Confidential
The Private Equity Ecosystem
The first Venture Capital investment in financial history
ARDC credited with the first
major venture capital success
story when its 1957 investment
of $70,000 in Digital Equipment
Corporation (DEC) would be
valued at over $355 million after
the company's IPO in 1968
ARDC made an annualized
return of 101% on the
transaction
Arguably the first noted Private Equity Buyout in financial history
J. Pierpon Morgan’s 1901 acquisition of Carnegie Steel
Company from Andrew Carnegie and Henry Phipps for $480
Mn represents the first true major Private Equity buyout
The real PE boom came in 1980s in USA ….
• For the first time, the public became
aware of the ability of private equity to
affect mainstream companies and
"corporate raiders" and "hostile
takeovers" entered the public
consciousness
• The decade would see one of the largest
booms in private equity culminating in the
1989 leveraged buyout of RJR Nabisco
• In 1980s PE industry raised $2.4 bn of
annual investor commitment and by end
of 1989 the figure stood at $21bn
Private Equity industry is a $1.2 Tn industry today
Exits
Global Buyout Exit value
$500Bn
Source: Dealogic
Fund Raising
Buyout Capital Raised
$300Bn
Investments
Buyout Deal Value
$300Bn
Some of the largest PE funds globally include ….
Goldman Sachs
$20.3 Bn
TPG Buyout
$ 18.9 Bn
Apollo Global Mgmt
$ 18.4 Bn
CVC Partners
$ 18.2 Bn
KKR
$17.6 Bn
Blackstone
$ 16.3 Bn
TPG Growth
$ 15.4 Bn
Apax Partners
$ 11.2 Bn
Source: Forbes
PE Fund raise bouncing back after 4 years of sharp degrowth
Global PE capital raised
$Bn
Source: Preqin, Bain & Co.
PE constitute 54% of total FDI in India
% of total FDI flow in India
160 funds out of
325 registered &
active funds made
investments in
2013
Source: Bloomberg, CEIC
Top sectors attracting PE investments …
Source: Dealogic, ET
Early & Growth Stage deals comprise more than 70%
Source: Bain & Co.
Opinion – which sectors are likely to attract most PE/VC investments
in next 2 years
Source: Bain & Co.
Issues faced by PE investors … survey of major LP concerns
Source: IVCA Limited Partners Survey, 2014
Structure of PE funds
• Domestic Fund
Trust, Company or LLP
Trust structure mostly prevalent
Provisions of Companies Act restricts fund raising
• Difficulty in redemption of securities, buyback restriction to
25% of paid up capital
• Difficulty in distributing profit/dividend (e.g. compulsory
transfer to general reserve for dividends in excess of 10% of
PV of shares)
• Lengthy wind up procedures
• Offshore Fund
LLC or LLP outside India
• Unified Fund
LLC or LLP outside India with a Trust registered in India for
domestic investors
Unified vs. Co-Investment Structures
Regulatory framework
• Both Domestic & Offshore funds regulated by SEBI
SEBI (Venture Capital Funds) Regulations, 1996
SEBI (Foreign Venture Capital Investors) Regulations, 2000 (FVCI
Regulations)
SEBI (Alternate Investment Funds) Regulations, 2012
• SEBI (Venture Capital Funds) Regulations, 1996
VCFs not permitted to invest in securities of foreign countries
Negative list for VCFs: real esate, gold trading, NBFC etc.
MOA/Trust Deed prohibited to make an invitation for IPO
• The SEBI (Foreign Venture Capital Investor) Regulations, 2000
Covering Investors incorporated outside India
No min capital or corpus or individual contribution
Mandatory to appoint domestic custodian
Regulatory framework (cont’d)
• SEBI (Alternate Investment Funds) Regulations, 2012
All VCFs/FVCFs registered as AIF
AIF shall have a minimum corpus of Rs 20 crore
The fund or any of its scheme shall not have more than 1,000
investors
AIF shall not accept investment of value less than Rs. 1 cr from an
investor
Not to invest more than 25% of funds in one investee company
AIFs shall not invest in associate companies
Funds to give investors financial information of portfolio
companies
Units of AIF may be listed on stock exchanges subject to a
minimum tradable lot of Rs. 1 cr
Funds enjoying certain incentives from SEBI or the Central Govt.
will fall under Category I AIF (venture capital funds, SME funds,
social venture funds and infrastructure funds)
Note: AIFs categorized under PE funds, RE funds and MFs