'Proposed hike in open offer limit will benefit PE investors'

The proposed revision in open offer norms will be advantageous for private equity investors, providing leeway for "meaningful investments", but activity in the overall M&A space may slow down, experts said.

"This is a welcome move for private equity investors, as it will help them make a meaningful investment in mid-cap companies and invest more in listed companies," KPMG India Executive Director and Head of PE Advisory Vikram Uttamsingh said.

Experts said a Sebi panel's recommendations of a hike in the threshold limit to 25 per cent from 15 per cent, if implemented, may give PE investors room to invest more without triggering the open offer.

Terming the recommendations as a "mixed bag", BMR Advisors Partner Vivek Gupta said, "While this (proposed revision of open offer trigger limit to 25 per cent) may cause some deal activity, the requirement of 100 per cent open offer would likely result in M&A for listed companies going down on an overall basis."

The Sebi takeover panel today recommended hiking the open offer trigger to 25 per cent from the current 15 per cent and raising the offer size to 100 per cent of the equity in the target company.

As of now, an open offer for a minimum of 20 per cent in the target company is required to be made by any entity that purchases 15 per cent equity, either from the promoters or from the open market.

Though terming the recommendations as fair and pro-investor, Ernst & Young National leader Global Financial Services Ashvin Parekh said, "M&A deals may become expensive if the proposal comes into effect due to proposed changes in the offer price calculation."

The Sebi panel has recommended that the offer price would be based on the volume weighted average of the 12 weeks market price of the target company, as against 26 weeks presently.

"The proposals are positive news for private equity investors. If approved, they will provide PE investors flexibility and give leeway for making more deals happen in the Indian corporate space," Deloitte in India Leader (Financial Advisory) Avinash Gupta said.

However, Gupta said, looking from another angle, such proposals, if accepted, may pose a threat to the promoters who hold less than a 15 per cent stake in their companies.