'Unrealistic valuations hampering PE deals'

Many entrepreneurs wanting to sell a stake have unrealistic valuations of their companies. This is a major block for private equity (PE) players to close a deal. Also, many do not have a second plan if talks fall apart, according to speakers at the Private Equity Conference at the Indian School of Business.

KK Iyer, partner, India Equity Partners Fund, says many target companies have suspended their plans to seek PE funding during the year 2008-09 due to market conditions. Those that have taken the deals forward are now involved in number crunching.

Many promoters are also emotionally attached to the companies and do not want to give up their stake and this hampers the growth plans, he says.

According to Aluri Rao, managing director of Morgan Stanley, that more buyouts will happen in three years in India as family businesses will look for a transformation. Besides, many are keen on having a professional approach in running the company. PE players are also wary of investing in start-up companies, Rao said.

With fiscal stimulus packages working and enough liquidity in the system, companies are not preferring the PE route for raising capital for growth or diversification, says BV Krishnan, director, Kohlberg Kravis Roberts.

PE firms are, therefore, changing their business models including asset management, he adds.