Tuesday 21 June 2011

Providence Equity Tweaks India Strategy

After some large telecom deals, Providence Equity Partners LLC, one of the biggest private equity investors in communication and media companies, plans to tweak its India strategy and make smaller investments.
Providence has $23 billion under management mostly in telecom, media, technology and education. Since 2006, its India unit has deployed nearly $900 million across firms such as Idea Cellular and Aditya Birla Telecom.
"In selective cases, we are open to do early stage deals," said Biswajit Subramanian, managing director at Providence Equity Advisors India.
For instance, the company last year incubated a company in China called Qiyi.com Inc., which is an Internet-based video company that was started in partnership with Baidu Inc., the Google of China.
Providence Equity, however, is keen on investing in India's education sector, particularly in segments such as test preparation, vocational training and educational content, where large deals are uncommon.
"The issue is that there are not enough big deals," Mr. Subramanian said. "So what we may end up doing is a platform play, where we will buy a small company that itself may not take a huge amount of investment, and help it grow through acquisitions or new product launches where further capital can go."
Sandeep Aneja, founder and managing director of Kaizen Private Equity, the country's first education-focused fund, however, says it's a risky play: Incubation deals will be easier for large funds but small funds may find the cost too high.
"Very few deals that have been incubated have been successful," he said.
Providence's first deal in India was a $420 million investment in 2006 in Idea Cellular. In 2008, the firm invested $430 million in Aditya Birla tTelecom, which holds a stake in Indus Towers -- a company formed to combine the wireless assets of three of India's largest GSM mobile operators. This April, Providence Equity invested $60 million in UFO Moviez India.
The company has found it difficult to keep pace with the changes in India's telecom sector since its investment in Idea Cellular.
"What we didn't expect was that so many new players would be introduced, that unfortunately has led to an effect that although the company is doing very well operationally, the overall market pricing has come down. The profitability of many of these companies has come down significantly and the stock price(s) of these companies have taken a hit," Mr. Subramanian said.
Falling tariffs due to increasing competition and a scandal over allocation of second-generation telecom spectrum and licenses has made investors cautious about the sector.
"The telecom sector has seen serious turmoil across different areas that funds had invested in, and this has heightened the uncertainty among investors," said Darius Pandole, partner at private equity firm New Silk Route Advisors, which owned a majority stake in telecom tower company Ascend Telecom Infrastructure.
In March, Ascend—formerly Aster Infrastructure Pvt. Ltd—and India Telecom Infra agreed to merge their telecom tower businesses.

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