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September, 2006 Pragati Maidan, New Delhi, India |
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Move Towards Global Footprints Through Local Resources
Venture capitalists to focus on M and A in BPO, pharma R and D
The next wave of venture capital investments in India will focus almost exclusively on merger and acquisition (M and A) plays. Industry estimates peg venture capital inflow into India at $4.5 billion over the next five years and of this only $1 billion will be invested in start-up. The key focus areas for investments will be business process outsourcing (BPO), pharma R and D, retail and entertainment. Venture Capitalists (VC) has begun to look at two kinds of M and A deals.
First, Indian companies which are looking to create a global footprint using local resources. This would become most apparent in the BPO and IT services sectors where mid- sized companies have reached a certain scale and are now looking to expand overseas to sustain growth rates. Second, companies which are moving towards leveraging local opportunities to grow their business. The entertainment and retail have become big opportunity areas and are moving towards consolidation.
However, there are some serious hurdles VCs could come up against with regard to M and A deals. A lot of start-ups are unable to scale up at the right time because their founders are often reluctant to step aside. Indian companies still have a long way to go in terms of transparency and corporate governance. In addition, unlike the more mature US market, India still has a relatively large concentration of inexperienced entrepreneurs.
On the flip side, despite the risks, the Indian market offers a range of exit opportunities. The current capital market conditions makes exists through IPO very conducive.
Date: 26-Oct-2004
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