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| Private equity places big bets on SMEs |
| Debasis Mohapatra / Bangalore Aug 18, 2010, 00:17 IST |
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Private equity (PE) players are again ready to look at small and medium enterprises (SMEs).
“The conservativeness of investing in the secular sector has faded and PE players are ready to put their money in emerging areas with high growth rates,” said Sharath Naru, managing partner of PE firm Ventureast.
In the economic downturn, most PE firms invested in secular sectors like health care, pharma and agri industries to protect their corpus. Now, investors are increasingly looking at high-growth verticals such as technology and renewable energy.
Ventureast, which invests around $5 million in the first round and has a investment horizon of five to seven years, is also betting big on these verticals, says Naru. Naru said the firm had closed two new deals this financial year with the second round of funding for another two companies expected this fiscal. “We expect to close six deals this fiscal,” he added.
Data with Venture Intelligence, a research firm focussed on PEs & VCs, showed that PE deals in the SME space dipped to 130 in 2009 from a peak of 201 in 2008 due to the economic recession. However, the number of deals stands at 78 with a total investment of $694 million and is expected to reach the 2008 level. The deal amount fell to $842 million in 2009 compared to $1.86 billion the previous year.
“Our focus areas are engineering, procurement and construction in the infrastructure space, as well as manufacturing and capital goods, which get 75 per cent of our funds,” said Vishal Kapur, investment director & principal of Avigo Capital Partners. The rest 25 per cent would be in energy, especially renewable energy, he added. Avigo Partners, which invests $7-20 million in a company, is also trying to unlock value through the initial public offer (IPO) route.
“IPO is of course the preferred exit route for a PE firm. Also, as the markets are robust, SMEs in emerging verticals will get renewed interest from PE funds,” Kapur added.
Data with Venture Intelligence prove this shift towards high-growth sectors. While as on date, there have been 26 deals amounting to $151 million in information technology(IT) and IT-enabled services, 10 deals worth $131 million have been closed in banking and financial services this year. Close to seven deals have been signed each in energy, education and health care and life sciences, with the investment range being $35-$98 million.
Gauging the opportunity, big players like SBI Capital and SIDBI are planning to float SME funds.
“We are planning to float a dedicated SME fund with an initial corpus of Rs 100 crore in the next one-and-a-half years,” said Rajeev Krishnan, executive vice-president, SBI Capital Markets. The fund would be used to attract PE funds to SMEs, which otherwise were facing dearth of capital for growth, he added.
Sources said Small Industries Development Bank of India was also planning to float such a fund in the near future.
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