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Private equity market set to reach $7 b in 4 years

Corporate Reporter

Bain & Co study says expanding demand will fuel growth

CHENNAI: The private equity market in India, which attracted $2.2 billion in investment capital last year and $3.5 billion in the first half of this year itself, will reach at least $7 billion in 2010. That estimate — described as a conservative projection of India's upside private equity market potential — is among the findings in a new Bain & Company study, "India Private Equity Outlook."

Bain projects that private equity investments in India will remain based on the traditionally smaller growth-capital investments. Transformational mega-deal buyouts similar to those struck in the U.S. and other mature markets are far more difficult to execute in India than in the U.S. and the West, given government limits on access to foreign leverage and the reluctance of family-controlled businesses to cede control. The study, however, notes that recent signs of a change in attitude could signal the emergence of a nascent buyouts market.

"We've observed early signs that the traditionally strong opposition to change in control issues may be starting to diminish," said Sri Rajan, head of Bain & Company's Private Equity Practice in India and author of the study.

The study also finds that there are two main economic forces driving the estimated surge in the size of the Indian private equity market. A growing consumer class is driving demand in key industries, such as hospitality, retail and healthcare delivery.

Bain's "India Private Equity Outlook" study reviewed more than 250 Indian private equity deals, valued at about $10 billion, which represented 80 per cent of all private equity deals in India from 2000 through first half of 2006. The top 25 investments accounted for almost half the total amount; nearly 40 per cent of these deals were for $100 million or less. About 70 per cent of the top 25 investments involved growth-capital (for a minority position in a company) or private investments in public enterprises.

The study also reveals that private equity ownership clearly reflects the maturity of a particular Indian business sector. Percentage ownership was greatest in business process outsourcing (27 per cent), and media and entertainment (23 per cent).

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