Private Equity in SME sector By: Shishir Jain, Managing Director, CX Partners Email – shishir@cxpartners.in, 022-67431009

Role of PE Investor

Why private equity Enables growth Efficient and creative capital Brings insights, knowledge, expertise and relationships Organize the business better Plays the ‘Challenger’, ‘Critic’ role Helps expands management bandwidth Improvement in corporate governance Perception improvement

What PE brings besides capital - strategic Mid and long term strategy planning Recruitment, retention and succession planning Acquisition target / divestment strategy evaluation Brand image Corporate governance Institutional approach to financial planning Preparing for IPO / strategic value unlocking

What PE brings besides capital - operational Management information system Marketing strategy International expansion Product costing / production flow analysis External relationship management Inventory and supply chain management Internal controls

What PE looks in Promoter and management team Ownership vs management Track record of their dealings with business partners Delegation / micro management Accommodative to outside investors Execution capabilities Clarity in vision / mission Business model Sustainability of business Margins Value proposition Innovation / growth potential Differentiating factor Position of the company vis-à-vis industry Corporate governance Transparency Quality of reporting Valuation Handling of softer aspects

Exit Modes IPO Divestment / Secondary buyout M&A Buyouts Leveraged Buyout (LBO) Buyouts Management Buyback Strategic Buyout India has provided many successful exits for various private equity players through the IPO route Biocon, Patni computers, Bharti Airtel, Shoppers Stop, Suzlon, HT media, Fortis healthcare and the recent Idea cellular, Binani cement to name a few. M&A is the best option exercised by overseas companies to exit via a strategic investor. LBO’s of today are different from that of the 1980’s India has not seen much buyouts as compared to US & UK. Buyouts are coming up with ICICI Banks venture of Renuka Ramnath who is responsible for raising the India Advantage Fund, India's largest private equity fund till date with a corpus of US$230 mn

PE may not be an appropriate solution for all situations Capital provider vs business partners Emotions vs objectivity Perpetuity vs limited time horizons Stage of industry / company vs global practices