This story first appeared in DNA Money edition on Thursday May 12, 2011.
Tata Capital has announced the first close at $800 million for a family of five private equity funds announced in August last year.Most private equity firms do fund-raising in stages, typically with three or four closures, if the corpus is huge. Beating the trend, however, Tata Capital has raised 80% of its targeted $1 billion corpus — through a growth fund, an opportunities fund, a special situations fund, an innovation fund and a healthcare fund — in just six months of hitting the street and expects to make a final close well within the targeted deadline of December this year.
“The overall timeframe for closing the fund-raising exercise was 18 months and nine months was sort of a half-way point we had internally targeted as the date for first close. It so happened that $800 million was the figure as of March 31, 2011,” Praveen P Kadle, managing director and CEO, Tata Capital Ltd said.
How did the company manage this despite the difficult fund-raising environment? “In retrospect, we can say now that it was a good decision to take the non-conventional route to raising the funds. Because, when we’d started the exercise, the market was already cluttered with a host of existing and new private equity firms which had set out to raise money for their respective funds. Most of these funds went to the traditional US and European investors and if we’d taken the same approach, we’d have been just another fund in the queue,” said Kadle.
Of the overall corpus, the domestic component of $220 million, or 35% of the overall corpus, has been raised from banks and other financial institutions and through promoter equity (around 15%). The balance $580 million, or 65% of the overall corpus, has been raised from investors in Japan, South East Asia, Europe and Asia Pacific. In fact, close to 40% of the foreign component has been raised from six or seven entities in the Japanese market.
On end use of the funds, Kadle said the company will look to invest in a mix of Tata and non-Tata companies. “We are not really being very adventurous by getting into completely unrelated areas. We have chosen the investment profile of companies which are either raw material suppliers or customers or service providers to the Tata Group companies.”
Working within the Tata ecosystem will ensure that a significant proportion of the investment proposals will be proprietary in nature and not from investment bankers. This, according to Kadle, makes the valuation exercise more advantageous, focused and realistic for the company.
On the deployment side, Tata Capital is taking the stage (early, growth, expansion and special situations) and sector agnostic route (barring real estate and infrastructure, for which group company Tata Realty and infrastructure is raising a separate fund). Tata Capital has already made six investments, totaling $150 million, for its family of funds. The funds have gone into companies operating in sectors like engineering (11%), auto parts (12%), IT & ITES (21%), Healthcare (8%) and Consumer (48%).
Over the life of the current funds, the company plans to make 40 investments —- this means it will make around 34 more investments in the next three years or so. Kadle said the company has an advantage over pure-play private equity firms as it invests in group entities or entities related to them and is therefore able to sniff exit options better.
The expected return on equity is around 18-19%, said Kadle. “While I would not like to put a number to return on equity, all I can say at this stage is that early stage investments are very likely to give us much higher returns provided various other parameters are met with at the time of making the investment. While in contractual terms the investment horizon is around 7-8 years, it will be our endeavour to try and give our limited partners an early return of their capital.”
Tata Capital has announced the first close at $800 million for a family of five private equity funds announced in August last year.Most private equity firms do fund-raising in stages, typically with three or four closures, if the corpus is huge. Beating the trend, however, Tata Capital has raised 80% of its targeted $1 billion corpus — through a growth fund, an opportunities fund, a special situations fund, an innovation fund and a healthcare fund — in just six months of hitting the street and expects to make a final close well within the targeted deadline of December this year.
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| Praveen P Kadle, MD & CEO, Tata Capital |
“The overall timeframe for closing the fund-raising exercise was 18 months and nine months was sort of a half-way point we had internally targeted as the date for first close. It so happened that $800 million was the figure as of March 31, 2011,” Praveen P Kadle, managing director and CEO, Tata Capital Ltd said.
How did the company manage this despite the difficult fund-raising environment? “In retrospect, we can say now that it was a good decision to take the non-conventional route to raising the funds. Because, when we’d started the exercise, the market was already cluttered with a host of existing and new private equity firms which had set out to raise money for their respective funds. Most of these funds went to the traditional US and European investors and if we’d taken the same approach, we’d have been just another fund in the queue,” said Kadle.
Of the overall corpus, the domestic component of $220 million, or 35% of the overall corpus, has been raised from banks and other financial institutions and through promoter equity (around 15%). The balance $580 million, or 65% of the overall corpus, has been raised from investors in Japan, South East Asia, Europe and Asia Pacific. In fact, close to 40% of the foreign component has been raised from six or seven entities in the Japanese market.
On end use of the funds, Kadle said the company will look to invest in a mix of Tata and non-Tata companies. “We are not really being very adventurous by getting into completely unrelated areas. We have chosen the investment profile of companies which are either raw material suppliers or customers or service providers to the Tata Group companies.”
Working within the Tata ecosystem will ensure that a significant proportion of the investment proposals will be proprietary in nature and not from investment bankers. This, according to Kadle, makes the valuation exercise more advantageous, focused and realistic for the company.
On the deployment side, Tata Capital is taking the stage (early, growth, expansion and special situations) and sector agnostic route (barring real estate and infrastructure, for which group company Tata Realty and infrastructure is raising a separate fund). Tata Capital has already made six investments, totaling $150 million, for its family of funds. The funds have gone into companies operating in sectors like engineering (11%), auto parts (12%), IT & ITES (21%), Healthcare (8%) and Consumer (48%).
Over the life of the current funds, the company plans to make 40 investments —- this means it will make around 34 more investments in the next three years or so. Kadle said the company has an advantage over pure-play private equity firms as it invests in group entities or entities related to them and is therefore able to sniff exit options better.
The expected return on equity is around 18-19%, said Kadle. “While I would not like to put a number to return on equity, all I can say at this stage is that early stage investments are very likely to give us much higher returns provided various other parameters are met with at the time of making the investment. While in contractual terms the investment horizon is around 7-8 years, it will be our endeavour to try and give our limited partners an early return of their capital.”
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