“Narendra Modi effect”: “Clutch of VC & PE funds” out to raise $2 billion | The Economic Times

More than half-a-dozen VC & PE Funds, are set to start the process to raise a combined $2 billion (about Rs 12,000 crore) from foreign and local investors, riding on the #BullishSentiment the change in Government has brought to the market…!!

At least FOUR established PE Funds have begun talks with investors while three have revived previously shelved plans, said people with knowledge of the matter and fund managers…

Arth Capital and Exponentia Capital are among the funds that have brought back plans that had been put on the back burner. ” We have a commitment of $150 million now and would raise up to $500 million for our infrastructure fund,” said a person with direct knowledge of the ICICI Venture fund’s plans.

ICICI Venture, India’s second largest PE fund, is betting on the infrastructure sector, which is high on the investment agenda of the Narendra Modi government to kick-start the economy…” There is a huge equity requirement for infrastructure projects,” this person said…!!

Narendra Modi Effect: clutch of PE funds out to raise $2 billion

Investor sentiment towards India had soured in recent years as economic growth slowed to less than 5% in fiscal 2013 and 2014 from over 8% in 2007. PE funds that have invested more than $50 billion in the past decade couldn’t exit their holdings as company valuations took a dive.

With returns from PEs drying up, limited partners (LPs), who commit money to these funds, stopped making new investments, delaying closure of new funds.

Though those concerns have now eased as the window for public offers opened again, industry experts say fund-raising will still be challenging for those who don’t have a good track record, quality and team continuity.

” VC & PE funds which demonstrate these parameters will have an edge over others,” said Vikram Utamsingh, managing director of transactions advisory group at Alvarez and Marsal. “LPs have been negative as the India story had been dampened for the past four years, but post national elections they are turning positive.”

According to him, investors are watching how the government will improve the investment climate. “There have been lots of enquiries from investors,” Utamsingh added..

Everstone, owned by former Mckinsey consultant Sameer Sain and partner Atul Kapur, is planning to raise around $750 million, its third fund. They have already made investments from two funds, focusing on companies in sectors such as consumption, infrastructure, real estate and financial services. Between 2006 and 2011, Everstone raised $975 million, closing the first fund of $425 million in September 2006 and second in May 2011 after raising $550 million. The last fund invested in 11 companies, including Hinduja LeylandBSE -1.51 % Finance, Burger King and Indostar Capital Finance, a non-bank finance company..

” We will raise the third fund by the end of the year only. It’s too early for us,” said a spokesperson. ” Typically, PEs raise funds once they have invested close to 80% of the money which is usually threefour years from the time they raise the fund,” said Utamsingh.

Some funds have received commitments from their main investors, or anchor investors. Multiples, owned by former ICICI Venture head Renuka Ramnath, has received a commitment from Canadian Pension Fund (CPF) for $100 million, as it plans to raise $500 million in its second fund. CPF had invested $80 million in the previous fund…!!

Exponentia Capital of PR Srinivasan, former head of Citigroup PE fund, has revived its plan to raise $250 million. “Fund-raising should accelerate as PE funds successfully exit from some of their investments in the past five years and return capital,” Srinivasan said…But some fund managers say fund closure will take longer…!!

” Though the stock markets have run up much faster, limited partners will take a longer time to react,” said Sumit Chandwani, managing partner of Arth Capital that has revived plans to raise $200 million…

“We could be closing the fund in the next 6-12 months,” said Chandwani, who had worked at ICICI Venture for 12 years before starting his own fund….!! 

Expect “more Mid-Market Divestitures in 2014” : “Strategic-sales OR Acquisitions for growth-momentum” | Chief Executive

The report, conducted in late 2013 and the THIRD such endeavor by RBS Citizens, surveyed 460 Executives, ” who are open to OR currently engaged in some sort of corporate development activity, including Mergers, Acquisitions and Raising-capital…”

With a sense of stability returning to the economy middle market companies remain open to buying or selling but are prioritizing opportunities to Re-invest in their existing operations..

“ Our latest survey indicates that the appetite for acquisitions and sales remains strong, but businesses are taking a more strategic, less urgent approach, which reflects a strengthening economy,” said Bob Rubino, EVP and head of corporate banking and capital markets for RBS Citizens.

“As more Middle -Market companies see Top-line growth, Owners are looking for Strategic-Sales or Acquisitions that can augment their Re-investment Strategy and help keep their Growth momentum going ..”

These findings mirror other reports that suggest that critical sectors of the U.S. economy such as healthcare, retail food and energy will see continued or renewed M&A activity in 2014, according to business leaders at CIT Group. .

The middle market is ripe for a more fruitful M&A environment in 2014, according to Thomson Reuters LPC. The persistent fog of economic and political uncertainty that has stymied investment is lifting, giving way to improved visibility for lenders, borrowers and private equity sponsors alike.

Increased Economic confidence, more certainty with respect to Fed tapering, and fewer concerns about future government budget stalemates are paving the way for greater willingness to buy, sell and invest in middle market companies…

If in recent quarters companies were primarily focused on cost savings, they are shifting their attention to strategic growth opportunities. There is an abundance of capital – in the hands of both debt and equity investors – waiting on the sidelines, which will help buoy M&A activity…

Key findings from this year’s RBS Citizens survey include :

Sellers are more interested in selling part of their business than the whole.

While interest in raising capital remains steady, companies are less likely to take on debt and are more likely to accumulate earnings, sell a business unit or divest significant assets to make investments.

Executives believe both this year and next will be a ” Buyer’s market”..!!

Nine of Ten survey respondents intend to engage a ” Friend in the deal ” – an outside partner – to provide guidance throughout the M&A process ; half of all buyers and 40% of sellers are considering partnering with a commercial bank…!!

In late 2013, RBS Citizens conducted a survey of 460 U.S.-based middle market business executives that are open to or currently engaged in some form of corporate development activity, including mergers, acquisitions, and raising capital in the New England, Mid-Atlantic and Mid-West regions. For the purposes of this survey, middle market businesses have annual revenues of between $5 million and $2 billion.

The Sellers’ Perspective :

  • Based on this year’s survey results, the proportion of current and potential sellers in the market remains unchanged since 2012, but their motivations and intentions have shifted.
  • Although just 6% of middle market executives are currently involved in a sale, more than one-third indicate they would be open to a deal if approached by a buyer with a strategic fit.
  • While sellers were willing to ‘sell it all’ a year ago, a partial sale – selling an operating asset or division – has become more appealing than selling off the entire organization.
  • Being undervalued and underpaid by acquiring firms remains sellers’ primary concern; partial sellers are increasingly concerned about meeting post-acquisition revenue targets.

The Buyers’ Perspective :

While fewer acquisitions were in process at the end of 2013 than in the year before, deals this year are expected to be ” Larger and more Strategic” :

  • Less urgency in the market has translated into fewer current deals in process in early 2014 and more potential buyers are ‘on the sidelines’: open to but not actively seeking buying opportunities.
  • Buyers are less reliant on M&A as a means of growing; their goals are now more likely to be expanding geographic reach, increasing production and product capabilities and accelerating organic growth.
  • Respondents plan to make fewer purchases in 2014 but expect to spend more on each; the majority of executives anticipate spending between $10 million and $25 million.

Given the complexity of an M&A transaction, from ensuring proper valuation to identifying the best strategic buyers OR acquisition targets, the process has become more labour-intensive.

Most companies  without an “experienced Internal-Team” are “relying on an Outside Advisor”…!!

  • Of organizations who intend to engage external support for their deal-related corporate development needs, commercial banks are the most popular choice, followed by investment banks and business brokers.
  • Nearly half (47%) of respondents rate commercial banks as ‘excellent’ in regards to their corporate development capabilities, compared to 35% for investment banks and 26% for both private equity and venture capital firms.
  • Valuation, financing, opportunity assessment and due diligence are the areas where these companies are looking for the most help.

 

“Time to Re-engage with Emerging Markets”, “Not Retreat from”| BCG

These are challenging times for Emerging Markets… China’s economy is expanding at the slowest pace in more than a decade, and Annual-Growth in once-booming nations like Brazil, Mexico, Russia, and South Africa has slowed to about 1.5 to 2.5 percent…While India, has fared well in-comparison to its peer BRICS nations…but is well-below its own Y-o-Y GDP no’s, since 2008…

Look around the developing world, and currencies are weakening, worries about asset bubbles and rising debt are mounting, and foreign direct investment has fallen sharply. This volatility leaves many companies wondering if they are over-exposed to the #RisksOfEmergingMarkets..

The challenges in emerging markets go beyond volatility. Fundamental, longer-term changes are transforming the competitive landscape. In most emerging markets, domestic companies with low-cost structures and intimate knowledge of local consumers are more aggressive and are quickly improving their operations… Competition for increasingly scarce talent is fiercer and is driving up labor costs. Such trends are hurting profits. In China, for example, the share of U.S. companies reporting that their operating margins were higher than the global average dropped from about 50 % to just over 30 % between 2010 and 2013, according to the American Chamber of Commerce in Shanghai..

Still its Where the Action Is :

But companies that plan to look for the exits or scale back in emerging markets should reconsider. The most fundamental trends remain promising. One is that emerging markets will remain an unmatched source of growth in most industries. Another is that hundreds of millions of households will continue to join the ranks of the middle class and affluent in the decade ahead..

Despite the discouraging headlines, Emerging Markets are more important today than ever before. Even with all the turbulence in 2013, these economies accounted for 68 percent of global growth… Although the overall pace has slowed, Oxford Economics projects that GDPs of emerging markets will grow 2.2 percentage points faster than those of developed economies over the next four years. Just in terms of infrastructure, demand for investment in emerging markets will total a stunning $25 trillion through 2025, according to some estimates.

The ” BiggestDriverOfGrowth will be Rising Incomes… The Boston Consulting Group projects that in Turkey, an additional 6 million households will enter the middle and affluent classes in the next five years. In Indonesia, we project that 68 million people—roughly equivalent to the entire population of the UK—will make a similar leap by 2020. Thirty-seven percent of Brazil’s 60 million households will belong to the middle and affluent classes by 2020, compared with 29 percent now, and will represent a $1.2 trillion market. In China and India, such households will represent $10 trillion in buying power. Companies will have to look beyond a country’s GDP and focus instead on the more significant factors that will generate growth: rising consumption by relevant segments of consumer markets, and signals that purchasing power is about to take off.

To win in emerging markets, executives will need to rethink their approaches. As many of these economies make the transition from super-high growth, tapping major new sources of revenue will become harder than in the past. Executives should adopt a more differentiated approach to emerging markets and market segments…Companies should build new capabilities, adjust their business models, and improve their execution..

We believe that the following are the Primary #CorporateChallenges :

Refining the Emerging-Market Footprint – Growth prospects, consumer behavior, and the local competitive environment differ widely from one emerging market to another, as well as among industries. Each company must define the most promising emerging-market priorities, taking into consideration its own unique context and starting point…!!

We offer ” TWO Specific Ideas” for how executives should Re-visit their Market Portfolios : First, they should think beyond the popular acronyms. In the past few years, attention has been focused on the so-called BRIC economies—Brazil, Russia, India, and China. More recently, there has been more talk about MINT (Mexico, Indonesia, Nigeria, and Turkey). Of course, no company with global aspirations can ignore China and India. But companies should also build positions in markets that may offer better opportunities in the short term. While many multinational companies still target Indonesia, for example, material opportunities are also opening in adjacent Southeast Asian economies such as Vietnam, a recharged Philippines, and the frontier market Myanmar. Africa is also drawing greater attention from multinationals. Hyundai, for example, has surpassed Toyota in the five African countries that account for 70 percent of new-auto sales: Algeria, Angola, Egypt, Morocco, and South Africa. Samsung, also of South Korea, has set two goals for 2015 : achieving $10 billion in African sales and training 10,000 African engineers and technicians in order to develop the capabilities it needs to succeed.

Second, executives should simplify their strategies in order to expand and compete. Rather than always approaching each country individually, for example, they should think in terms of clusters. The sheer challenge of understanding and winning in more than 100 emerging markets can be so intimidating that most executives dare not try. So they should develop strategies to address promising segments across a number of neighboring countries or consider regional sourcing strategies in order to achieve critical mass. In Southeast Asia, for example, one major automobile company is taking advantage of the region’s free-trade pact to manufacture diesel engines and steering columns in Thailand, transmissions in the Philippines, gasoline engines and parts in Indonesia, and engine control units and steering gears in Malaysia.

Winning Over More Demanding Consumers – Emerging-market consumers expect more from foreign brands than they used to. Even average consumers in the lower rungs of the middle class are quality conscious. They can no longer be consistently won over by Western or Japanese products whose features and functions have been stripped down in order to hit a certain price point.

One reason for this development is that the quality gap between foreign and domestic products is closing fast. China’s Haier, for example, has emerged as the world’s largest appliance maker, in part because of its obsession with quality, according to a recent article in the Economist. Haier began by establishing a reputation for high-quality products and service in China. When it expanded overseas, Haier first pushed into the U.S. and Europe—rather than into less competitive markets such as Southeast Asia and Africa—because it wanted to learn how to meet the demands of the world’s most sophisticated consumers. As a result, Haier’s revenues have increased fourfold since 2000, topping $26 billion in 2013.

Multi-nationals must also move beyond selling off-the-shelf products and services that are aimed at the top of the income pyramid in emerging markets. Yum! Brands’ famous success story in China, where it has averaged annual growth of about 30 percent, is based on a strategy of customizing its restaurant concepts to local tastes, from restaurant design to food choices.

Adapting to the Big Competitive Squeeze – A decade ago, many multinationals regarded their global peers as their main competitors. This orientation has fundamentally changed. Foreign companies in emerging markets are being squeezed by different kinds of players.

One major source of competition is what BCG refers to as “global challengers”—fast-growing, globally minded companies with roots in emerging markets that are on track to establish leadership positions and to fundamentally alter their industries. In fact, 124 of the global Fortune 500 companies for 2013 were headquartered in emerging markets—more than double the number in Fortune’s 2008 list. In a recent BCG survey of more than 150 multinational executives, 40 percent of the respondents said they regarded other multinationals from developed economies as their primary competitive threats in emerging markets. But a greater proportion—50 percent—saw multinationals based in emerging markets as their main threats.

A second major challenge comes from companies that we call “Local Dynamos”: smaller emerging-market companies that focus only on their domestic markets. Such companies are catching up in terms of performance and distribution. They also have developed an intimate understanding of local consumers and strong relationships with local governments. In Brazil, where Wal-Mart Stores and Carrefour are both investing aggressively, the regional supermarket chain Super Muffato is the market leader in interior cities in the country’s south and in cities with more than 300,000 residents in the state of Paraná. Its 40 stores are just as profitable as stores in bigger cities owned by major international chains. For such reasons, 78 % of the multinational executives in our survey said they regard domestically focused companies as principal threats in emerging markets. In other words, these local companies are viewed as more serious rivals than other multinationals or new global challengers.

Meeting the Higher Expectations of Local Partnerships – Multi-billion-dollar #CrossBorderMergers&Acquisitions in #EmergingMarkets, tend to grab headlines.

But the real payoff on the ground for foreign companies is less than satisfying and often is not far-reaching. Organic growth, however, is challenging. To succeed, companies will have to up their game both in M&A and in forming local partnerships. While the rationale for and approach to a partnership agenda must be thought through in detail and tailored to each company’s own context, the emerging-market landscape is already witnessing different approaches to partnering.

One challenge for executives is to address the higher expectations of local partners. Emerging-market joint ventures in many sectors were traditionally based on a simple pact: foreign companies provide access to technology, capital, and sophisticated management solutions while domestic partners provide market access, government relationships, and, in many cases, low-cost production.

But this relationship has become obsolete. Today, partnerships between foreign and emerging-market companies are on a more equal footing. Local partners may inject capital or contribute valuable technology. They may even insist on a global partnership. When a Japanese provider of hospital equipment recently approached three preferred local-partner candidates for the India market, each company requested not only to help build up the local business but also to be the partner for expansion into other overseas markets. Indian motorized-vehicle manufacturer Bajaj Auto formed an alliance with Japan’s Kawasaki to obtain technology support for new-product development and to address a wider range of markets at home and abroad.

Organizing for #GlobalSuccess :

If a company views emerging markets as important to its success, this must be reflected in its organization structure. We see four imperatives regarding organization in these markets..

A Seat at the Table – One critical element is the way in which the corporate center supports its overseas units. Frequently, companies marginalize their organizations in emerging markets, all but guaranteeing that they will underachieve. They do not have a proper seat at the table of decision making, corporate strategy, and product development and have insufficient access to capital and people. If these markets are to deliver a larger share of growth, they deserve a disproportionate share of attention and support. At the home-product and beauty-care-product direct-sales company Tupperware Brands, which generates more than half of its annual sales in emerging markets, CEO Rick Goings is on the road 70 percent of the time, much of it in developing nations. Members of Siemens’s board learn about important emerging markets by spending two days in a region meeting with customers, government officials, and other key stakeholders.

An Accelerator Mindset & Organization – Multinational companies must adapt their organizations so that they can better cope with the tremendous speed with which many emerging markets are developing. Fast decision-making and consistent execution are paramount to compete with what we call the “accelerator mindset” of many emerging-market companies, such as their relentless pursuit of growth. Copying organization and governance structures that are successful in home markets may put multinationals at an unnecessary disadvantage against their local peers.

True Market Immersion – The most important imperative relates to leadership and people. Upper management must be familiar with emerging markets, ideally through on-the-ground experience. Senior executives must also remain sufficiently exposed to key customers, distributors, partners, and government officials in these markets. Too often, a foreign company’s senior executives experience only new airports and five-star hotels, rather than the realities of living on the ground.

Talent as a Competitive Advantage – Typically, foreign companies are at a competitive dis-advantage when it comes to recruiting top local talent. Talent is increasingly scarce, and attrition is high. Two out of three Indonesians change their employer within the first three years, for example, and one out of three does so more than once. The annual attrition rate in India is close to 15 % .

This high turnover suggests that executives must re-double their efforts to attract, develop, and retain local talent…They should also work harder to build organizations for the long run in emerging markets. When filling management positions, they must move away from the traditional practice of “ Expatriate Stints”, in which a Manager from Headquarters is assigned to an Emerging Market for about THREE years… Instead, executives must invest in future local leaders…

They should expose top Emerging-Market Talent to Global Activities and get them excited about their future growth potential in a company where individuals can thrive independent of their nationality… Wherever possible, leaders should instill in their companies a global mindset, in which a diversity of backgrounds is understood to contribute to international success.

#SuccessInEmergingMarkets, has become “more challenging than it was in the past”… But there is “still plenty of opportunity for growth”—most likely more than Developed Economies can offer. Rather than #RetreatingFrom EmergingMarkets, it’s “time for Executives to Re-tool & Re-position their businesses for #SustainedSuccess….!!

“Frontier-Markets” find Footing..within the overall “Emerging-Markets universe” |by: Mark Mobius | VC Circle

“Frontier markets” can be considered “a subset” of “Emerging Markets”, and they are typically economies at the lower end of the development spectrum..!!

Frontier markets remain in focus for the Templeton Emerging Markets Group in 2014, and my team and I have spent the early part of the year exploring potential investment opportunities in a number of them. I generally spend about a third of my time in these markets, with Dubai, Eastern Europe and South Africa serving as hubs for access.

While the Emerging Markets we visit today, were once considered niches or “exotic” investments when I first started investing in them in the late 1980s, many investors are now familiar with them. Many frontier markets are yet to be fully discovered by the investment community, and we believe they represent the next tier of investment opportunities within the overall emerging-markets universe. Frontier markets are located around the globe, in Asia, the Middle East, Eastern Europe, Central and South America, and Africa. We think there is good potential for frontier economies to forge ahead in their development this year and beyond. 

Top.Ten.Fastest.Growing.Economies.GDP.Growth.Templeton

Emerging vs. Frontier: The Distinction – 

There are a number of factors that go into qualifying a particular market as “developed,” “emerging,” or “frontier,” and different organizations or index providers may have slightly different criteria. Emerging-market countries include those considered to be developing or emerging by the World Bank, the International Finance Corporation, the United Nations, or the countries’ authorities, or defined as countries with a stock market capitalization of less than 3% of the Morgan Stanley Capital International (MSCI) World Index.

Frontier markets can be considered a subset of Emerging Markets, and they are typically economies at the lower end of the development spectrum. They are the generally smaller, less developed and less liquid emerging-market countries that are considered to be in the nascent stages of development.In essence, they represent what some Emerging-market countries such as Brazil, Russia, India and China were 20 to 25 years ago. By offering investors the ability to invest in a “younger generation of emerging markets,” frontier markets may provide an attractive investment opportunity, in our view. The MSCI Frontier Markets Index provides a handy benchmark for investors and MSCI has its own criteria to determine classifications, but they are not something we strictly adhere to when making investment decisions for our portfolios.

Frontier Markets charting their Own Course : 

Frontier markets have caught the attention of many investors, as frontier markets tend to be more exposed to their domestic economies—many of which are developing rapidly—as opposed to the global economy, which is growing at a much slower pace. Moreover, positive local developments such as the implementation of reforms have further benefited many individual markets.

Overall, we believe there have been a number of factors supporting frontier markets’ long-term potential. These include high levels of economic growth, positive local developments such as reforms and relatively low levels of consumer and sovereign indebtedness, as well as what we consider attractive valuations, in our view. In addition, we believe undeveloped natural resources, low-cost labor, favorable demographic trends and potential technological catch-up could continue to support these markets.

Focusing on some individual frontier markets, the United Arab Emirates has been benefiting from improving local economic data and the prospect of rising international trade flows through the port of Dubai. The recent award of the 2020 World Expo to Dubai is likely to provide extra impetus to an already solid real estate market, in our view. Improving economic news from the eurozone and some positive local developments supported a number of frontier markets in Europe, notably the Republic of Serbia and Bulgaria. In Asia, Pakistan has benefited from an improving growth outlook, a new International Monetary Fund loan program and hopes that planned economic reforms will be pushed through in 2014.

Current Valuations :

At the end of January, valuations in frontier markets generally remained attractive to us. As you can see from the table below, the MSCI Frontier Markets Index was trading at a trailing price/earnings ratio (P/E) of 13.6 times, much lower than the 17.4 times P/E for the MSCI World Index. In terms of price-to-book value (P/BV), frontier markets look attractive to us at 1.8 times, versus 2.1 times for the MSCI World Index, and the dividend yield was much higher in frontier markets at 3.6%, compared to 2.5% for the MSCI World Index. Further, some individual markets are even more attractively valued, in our opinion. Thus, we have been able to find some cheaper stocks that we think are better valued. Of course, this is not the case for every single company operating in frontier markets, but it is certainly true for many of them, in our view. Hence, we feel it is important to undertake extensive research and study each individual company rather than generalize.

Frontier fundamentals appear Favorable :

Investors have become increasingly open to new investment ideas and ways to diversify their portfolios. This trend is especially the case now, in our view, as relatively slower growth rates in major economies globally and low bank deposit interest rates have led many investors to look elsewhere for investment opportunities.

In our opinion, frontier markets remain among the most exciting investment opportunities for global equity investors. While the characteristics of frontier markets differ from region to region and country to country, as a group they share a number of traits. Similarities have included high levels of economic growth and relatively low levels of consumer and sovereign indebtedness that open up the potential for growth to accelerate, as well as valuations that we believe often have stood below the levels of equivalent businesses in developed and maturing emerging markets.

We believe internal sources of potential growth, including undeveloped natural resources, low-cost labor, favorable demographic trends and potential technological catch-up, could also continue to support the development of frontier markets going forward.