Indian Buyouts not happening

In recent years, the world's largest private-equity firms have rushed to India. Their big idea: invest lots of money to tap into one of the world's fastest-growing economies. So far, it's not working out that way.

Even though billions of dollars have been raised for investing in India, hardly any big deals are being done. The few that have happened are much less sophisticated and lucrative than the deals that the private-equity business is renowned for world-wide.

Rather than full-blown buyouts -- where private-equity firms purchase publicly listed companies, take them private, restructure them and sell them two or three years later for a fat profit -- big private-equity deals in India so far have involved the purchase of small, passive stakes in companies. That's a strategy more common among plain-vanilla mutual funds.


There are a host of reasons for that. Among the biggest: Many of India's largest public companies remain family-controlled, and many families are reluctant to sell what they consider the family's crown jewels.

"Families are very aware of the growth opportunity they have. No one at this stage is willing to sell," says Ajay Relan, an India-based partner at CVC International, Citigroup's private-equity arm.

I find it interesting that where you have family control and therefore a total alignment of interests between managers and shareholders, buyouts are not happening at the same pace as when those interests are separated. It tells you something about the (inevitable) misalignment of management and shareholder interests in a professionally managed firm.

Full article from the Wall Street Journal is here ($)

Posted on June 6, 2007 and filed under Finance.