Blackstone’s Investment in Intelenet Case Solution
Why has it been more difficult for Indian private equity organizations to acquire controlling stakes of portfolio companies than in other geographies? What does this mean for debt-funded buyouts in India?
- Different geographies have different cultures, environment and situation which lead to challenges for one who tends to expand their business to geographies.
- In thiscase the private equity funds of India faced challenges from the interest rates fluctuation and this varies from country to country.
- When the fund expands its operations towards new country it will face higher risk of fluctuation interest rates.
- Private equity firm of India has very little experience of international market and the needs and expectations of equity user.
- The regulatory requirement is also an important factor to consider when considering expanding the business to another country. (Baker, 2015)
- Currently, the private equity companies have facedtough competition from the stock markets, debt markets and privates placement. Therefore, the idea to expand the business in another economy provides the companies better opportunities.
- The private equity companies will face currency risk as well after the acquisition or investment in foreign companies.
- The currency fluctuation would affectthe company’s funds negatively and the profitable investment may become negative just due to currency fluctuation.
- The main targets of private equity companies are high technology projects and these projects are wide available in developing economies. The expansion of funds to the developed country might not generate healthy returns.
- The private equity funds will have to be competitive in case when they intend to expand their operations in developed countries.
- As the developed country players have service quality of international standards therefore, the Indian companies have to upgrade their quality standards.
- As indicated in the case, the central government provides benefits to the private equity firms which might not be the case in the international expansion.
- Private equity companies will face difficulty acquiring reasonable percentage of ownership in the overseas country as the public companies of developed country are big in terms of market capitalization. Although the private equity firms can use growth capital investment however,the return from these investments are less.
- Debt buyout involves that the management takes over or acquires the company with assistance from bank.
- In debt buyout the bank provides the companies heavy leverage or finance without taking any equity ownership.
- However the buyouts take place in rare cases and there is also a difficulty for the management to acquire profitable company from multinational group.
- India’s buyout market is a difficult process in terms of regulatory requirements as the case stated that the investors would not force minority shareholder to sell their share for delisting.
Why was Intelenet an attractive opportunity for Blackstone in 2007? What risks did Blackstone take on by acquiring it?
- India isthe major country which has the 33% of market share in global business outs sourcing. In addition to this the industry grows at the rate of 19% annually.
- The industry has main export partners that are United Kingdom and United States. The exports have continued to grow annually.
- The cash rich industry is attractive for private equity investment companies and the appropriateaction to enter in outsourcing industry is acquisition of existing player.
- Intelenet has a good market share in the outsourcing industry and it has large clients base operating in almost every sector. (Pandit, 2015)
- The investment is attractive as the company has diversified business and large client base reduces the dependency on clients.
- The investment company has good future prospects as the intelenet researched that the future of the business out souring industry is bright and it will reach around$250 billion.
- The company has most innovative and ideas and plans for the business expansion. Intelenet also has highly competent staff those have competencies ion risk management and process management.
- Financial position of Intelenet is also very attractive for equity company for investment as the company has good profitability as well as good cash position.
- The return on capital employed of the company is 25-30% which indicates that the company has generates reasonable return with low capital investment.
- The main risk involved in the investment is that the company’s revenue is based on small services which increases the risk of dependence.
- Intelenet has onerous contract with Globank for 4 years, which has enabledthe company to generate $50 million per year.
- On the other hand, the contract will provide benefits to Globank as compared to Intelenet.................................
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