TRESVISTA FINANCIAL SERVICES
depending on the growth prospects. Most investors,
who willingly pay a premium for the stock despite
the market volatility, continue to remain bullish on
the company’s growth potential and the respective
sector. Often investors are offered a discounted price
to compensate for the expected monitoring, services
and expert advice, reduced/lack of liquidity, and/or
the cost of due diligence. However, this is unlikely as
PIPE investors remain passive and may not increase
the firm value through monitoring; they might be
facing certain resale restrictions, which may even be
an incentive for investors to employ their specialized
management and operational skills to increase the
issuer’s public stock price and even incur expenses
to assess the issuer’s future prospects. In fact,
PIPE investors generally face much shorter resale
restrictions and also do not have access to material
non-public information.
Despite the current market fall which is expected
to have an impact on recovery, PE investors remain
willing to take long-term bets on the consumption
driven India growth story, as strategies depend
on a particular company and sector rather than
performance of the overall market. Also if the
investors have managed to identify companies that
are expected to survive the present downturn and
also have resources to bounce back when the market
rebounds, investors can increase the stake in those
companies whenever there is a good opportunity.
Outlook
In the wake of softening valuations, PE fund managers anticipate an increased pace of dealmaking in 2012. Growth investments are expected to be the most attractive PE segment in
the near future, followed by mid-buyouts, given that the Indian private investing market is
maturing. PIPEs are expected to be next in preference list, as the market conditions in 2011
presented attractive opportunities for PE funds.
After the bad performance of the equity market in the recent past, promoters are said to
have become more realistic about valuations thereby expecting a higher number of PIPE
deals in 2012. PIPE investors are expected to stick to the India consumption story and
shy away from companies that have significant dependence on the US or the European
markets or are export-oriented. Also, the new proposal by Security Exchange Board of
India (SEBI) is expected to help expand private equity deal universe and effectively increase
the potential deal sizes in the listed space by up to 89.0% without triggering the open offer.
The change is considered to be good as it would not only lead to increased participation
from PE players in terms of size and value of fresh investments, but also in their existing
portfolio companies, where they would use the opportunity to increase their stake.
The increasing competition in private space, as far as fundraising is concerned, also
compelled the PE companies to change focus into the listed space. Increasing number of
PIPE deals are expected to make the equity market cleaner and transparent, and trigger
the currently missing shareholder activism. The recent exit of four managing directors of
Sequoia Capital to form Westbridge Capital, an independent fund focusing on PIPE deals
and raise $500.0mn in a span of three months, indicates a promising future for PIPEs
in India. Other PE funds keen on PIPE deals in India include No