The global value of private equity buyouts has grown manifold from the start of this decade to the present. As the private equity environment becomes more challenging amidst rising interest rates, the volume of deals that took place in the first quarter of 2008 has plunged, compared to the same quarter last year.
A key takeaway, however, has been the way private equity firms significantly increase the value of their investments, thereby fueling growth. Harvard Business Review lists a number of factors that contribute to the high returns:
- growth incentives for portfolio managers, as well as the operations teams of portfolio businesses
- extremely determined focus on cash flow and margins
- use of debt for financing and getting tax advantages
As Indian companies start looking at global acquisitions, private equity arms of large Indian conglomerates are starting to show on the horizon. How well does the PE story pan out for these Indian firms will be an interesting study. Over the last one year, cross-border deals and incoming PE funding has seen good growth. In the current tide of events, how well can international and local PE firms flex their muscles remains to be seen. Watch this space.
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