Classic leverage buyouts must be allowed in India: Advent's Shweta Jalan

'Will not look at younger start ups where the cheque size threshold is met just because of high valuation'

Global private equity player Advent International recently raised $25 billion its largest fundraise ever which will also support its expansion in India. With over $2.9 billion already invested in India in over 13 companies, Shweta Jalan, managing partner, talks to Surajeet Das Gupta about its plans.

What does this fundraise mean for Advent’s plans for India? 

This fundraise is 40 per cent larger than our previous global PE fund which raised $17.5 billion in 2019 and has helped the firm reach the $100 billion milestone. It will support our expansion in India over the next few years and allow us to tap into attractive opportunities in a growing market. Asia is an important region for us and it shows with the volume of investments that we have done, particularly in the last 6-7 years where we have demonstrated a very active investing focus, particularly in India.

What is the ticket size that you are looking at in India while you invest? 

We have a size-agnostic approach to investing. The big advantage of this approach is it allows us to occasionally underwrite both large and small transactions while retaining the flexibility to invest based on sector, geography, and deal type. From the new fund, we would have the flexibility to deploy capital with equity investments ranging from $100 million to $2 billion. Or even more.

What are the areas you are looking at and has there been a change in your strategy?  

We have not changed our strategy, nor our underwriting standards and we would continue to look for investment avenues which have upside potential. We continue to see attractive opportunities in our target sectors, which are essentially healthcare, consumer, technology, financial services, and industrials. If opportunities arise, we will look at other sectors as well. We believe our strategy is well-suited to navigating various market conditions and cycles. Advent so far has not invested in start-ups in India.

But many start-ups now command large valuations of over $4-5 billion and are as big as many of the companies which Advent has invested in and many of them are in your areas of focus. So will you look at such companies?  

We will look at companies which are mature and established business models and are profit-making and cash-flow generating. What we will certainly not do is look at younger companies where the cheque size threshold is met just because the valuation is high.

What is your strategy on distressed assets?  

Distressed is in two buckets: one is distressed which requires massive debt restructuring and rebuild and there is no profitability left. Those will be harder for us to do. But the other bucket that we could look at is where there are transformation opportunities. These could be companies which have strong brands, good distribution networks, and solid underlying fundamentals but which have not been managed as well as they should have. With new management, the Advent portfolio management tool kit, and operating partners – you could transform such companies.

What is your time period for exits as there is a debate now that PEs should stay invested for a longer time to get upsides?  Or do you believe in the old model of 4-5 years.

The typical time period for a deal is 4-5 years. Having said that, if the value creation has happened faster, we could exit faster. We can also stay in a company for a longer timeframe, if we feel our investment is taking more time for the company to deliver to our plan. So, the exit horizons are not cast in stone, but on an average, it could be around 4-5 years. Most of our exits have been done in 4-5 years. In our portfolio we have done 4 full exits.

Are you looking only at a majority stake or are you comfortable with a minority?

At the highest level, we are flexible in terms of looking at minority and majority stakes, but we will not do passive investing. We want to invest in companies where we can provide more than just capital – where there is a true role for Advent to play to accelerate growth or/and transformation. As you know, we have also done minority trades like Quest, Aditya Birla Capital and ASK etc. We are flexible.

What are the key issues from a regulatory perspective that need to be resolved to give a bigger push to PE funds?

One regulation would be to allow banks to give leverage for acquisitions. The classic leverage buyout in India is not possible. This was a rule set a long time back for a different reason. Allowing domestic banks to provide leverage acquisitions would really propel LBOs in India further.

Two, building greenfield plants in India is still challenging. There are a large number of licences and permissions you require. Simplifying that and adding speed to the process will enable our businesses to grow faster. These are the two main factors and the third is obviously having consistent tax laws. This is an area where we have made progress in the last few years.