The Global Economic Impact of Private Equity Report 2008 - World ...

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shift from a regional to a pan‐Indian vision, and then wasinstrumental in providing the capital to execute an aggressiveacquisition strategy to realize the vision. Warburg Pincusalso played an important role in supporting the company torestructure the board and strengthen corporate governancepractices in preparation for its highly successful IPO.When asked to characterize Warburg Pincus’ role in Bharti’sgrowth, Chip Kaye, Warburg Pincus’ co‐president, offereda modest explanation: “Our success comes from beingassociated with extremely talented entrepreneurs like SunilMittal. Our role was to serve as a catalyst for his success.”Echoing this, Prasad added: “We should be careful not totake too much credit. As an investor, we can make an A+team into an A++ team, but we cannot make a C teaminto an A+ team.” The evidence in this case suggests thatWarburg Pincus’ financial success with Bharti was a functionof sound investment judgements and careful, well-thought‐outexecution at each stage of the private equity investmentcycle – deal origination, due diligence, post‐investmentcollaboration with an able and willing partner, and finally, exit.Exhibit 1A: India real GDP growth, 1980-2006India GDP and GDP growth rate, 1980-2006USD (billion) %90020.00%80015.00%70060010.00%5005.00%4000.00%3002001000Source: GDP data from EconStats.com.19801981198219831984198519861987198819891990Exhibit 1B: FDI into India, 1980-20001991GDPFDI into India and its percentage of Indian GDP, 1980-20001992199319941995Annual GDP growth rate19961997199819992000200120022003200420052006Year-5.00%-10.00%-15.00%USD (million)12,000%3.00%10,0002.50%8,0002.00%6,0001.50%4,0001.00%2,0000.50%01980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000YearFDIFDI as % of GDPSource: GDP data from EconStats.com; FDI data from “Globalization of Foreign Direct Investment in India: 1900s-2000”, Amar KJR Nayak, XavierInstitute of Management, Bhubaneswar, Orrisa, India.0.00%156 Case studies: Warburg Pincus and Bharti Tele‐VenturesThe Global Economic Impact of Private Equity Report 2008
Exhibit 1C: Private equity investments in Indian companiesPE investments in Indian companies 1990-2006USD (million)2,500% as GDP0.30%2,0000.25%0.20%1,5000.15%1,0000.10%5000.05%01990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006Year0.00%PE investments in Indian companiesPE investments as % of GDPData Source: Private equity investment data from SDC Platinum VentureXpert.GDP data from EconStats.comExhibit 2: Bharti’s three-line graphThe company tracks its performance on athree‐line graphThe parameters considered for the three‐linegraph are:The company believes that as far as the absoluterevenues keep increasing periodically, Opexproductivity stabilizes or keeps coming downand capital productivity keeps improving, thecompany’s overall financial health can be tracked.Given below is the graph for the lastfive quarters of the company.1. Gross Revenues – i.e., absolute turnover/salesAmount in Rs. Mn.2. Opex Productivity – operating expenses dividedby the gross revenues for the expected period.Operating expenses is the sum of (i) equipmentcosts (ii) employee costs (iii) network operationscosts and (iv) selling, general and administrativecosts. This ratio depicts the operationalefficiencies in the company.65,00055,00045,00072%71%43,57174%49,12976%53,93274%59,04680%70%60%50%3. Capital Productivity – this is computed bydividing revenue for the quarter (annualized) bygross cumulative Capex (gross fixed assets,capital work in progress and intangibles) tildate i.e., the physical investments made in theassets creation of the company.This ratio depicts the productivity of assetsof the company.35,00038,56435%Q1FY07Gross Revenue(Rs mn.) (LHS)36%Opex to GrossRevenue (RHS)Source: Bharti Airtel, First Quarter Report 2008.33% 32% 33%Q2FY07 Q3FY07 Q4FY07 Q1FY08Revenue (annualized) to GrossCumulative Capex (RHS)40%30%The Global Economic Impact of Private Equity Report 2008 Case studies: Warburg Pincus and Bharti Tele‐Ventures 157
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The Globalization of Alternative In
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ContributorsCo-editorsAnuradha Guru
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PrefaceKevin SteinbergChief Operati
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Letter on behalf of the Advisory Bo
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Executive summaryJosh lernerHarvard
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• Private equity-backed companies
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C. Indian casesThe two India cases,
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Part 1Large-sample studiesThe Globa
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The new demography of private equit
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among US publicly traded firms, it
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should be fairly complete. While th
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according to Moody’s (Hamilton et
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draining public markets of firms. I
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FIguresFigure 1A: LBO transactions
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TablesTable 1: Capital IQ 1980s cov
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Table 2: Magnitude and growth of LB
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Table 4: Exits of individual LBO tr
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Table 6: Determinants of exit succe
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Table 7: Ultimate staying power of
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Appendix 1: Imputed enterprise valu
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Private equity and long-run investm
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alternative names associated with t
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4. Finally, we explore whether firm
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When we estimate these regressions,
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cutting back on the number of filin
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Table 1: Summary statisticsPanel D:
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Table 4: Relative citation intensit
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figuresFigure 1: Number of private
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Private equity and employment*steve
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Especially when taken together, our
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centred on the transaction year ide
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and Vartia 1985.) Aggregate employm
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sectors. In Retail Trade, the cumul
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employment-weighted acquisition rat
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FIguresFigure 1: Matches of private
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Figure 6:Figure 6A: Comparison of n
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Figure 8:Figure 8A: Comparison of j
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Figure 11: Variation in impact in e
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Figure 12: Differences in impact on
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Private equity and corporate govern
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et al (2007) track the evolution of
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groups aim to improve firm performa
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distribution of the LBO sponsors, m
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the most difficult cases. This stor
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to see whether these changes of CEO
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Figure 3:This figure represents the
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TablesTable 1: Company size descrip
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Table 5: Changes in the board size,
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Table 7: Board turnoverPanel A: Siz
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Part 2Case studiesThe Global Econom
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European private equity cases: intr
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Exhibit 1: Private equity fund size
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Messer Griesheimann-kristin achleit
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ealized it was not possible to grow
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The deal with Allianz Capital partn
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the deal, the private equity invest
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Exhibit 1: The Messer Griesheim dea
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Exhibit 5: Post buyout structureMes
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New Lookann-kristin achleitnerTechn
Page 123 and 124: feet. This restricted store space w
Page 125 and 126: institutional investors why this in
Page 127 and 128: Although a public listing did not a
Page 129 and 130: Exhibit 5: Employment development a
Page 131 and 132: Chinese private equity cases: intro
Page 133 and 134: Hony Capital and China Glass Holdin
Page 135 and 136: Hony’s Chinese name means ambitio
Page 137 and 138: Establishing early agreement on pos
Page 139 and 140: Executing the IPOEach of the initia
Page 141 and 142: Exhibit 1A: Summary of Hony Capital
Page 143 and 144: Exhibit 4: Members of the China Gla
Page 145 and 146: Exhibit 6A: China Glass post‐acqu
Page 147 and 148: Exhibit 8: China Glass stock price
Page 149 and 150: 3i Group plc and Little Sheep*Lily
Page 151 and 152: y an aggressive franchise strategy,
Page 153 and 154: soul” of the business. But there
Page 155 and 156: Exhibit 1: Summary information on 3
Page 157 and 158: Exhibit 6: An excerpt from the 180-
Page 159 and 160: Indian private equity cases: introd
Page 161 and 162: ICICI Venture and Subhiksha *Lily F
Page 163 and 164: investment,” recalled Deshpande.
Page 165 and 166: 2005 - 2007: Moderator, protector a
Page 167 and 168: Exhibit 3: Subhiksha’s board comp
Page 169 and 170: Warburg Pincus and Bharti Tele‐Ve
Page 171 and 172: founded two companies at this time
Page 173: By 2003 this restructuring task was
Page 177 and 178: Exhibit 4B: Bharti cellular footpri
Page 179 and 180: Exhibit 6: Summary of Bharti’s fi
Page 181 and 182: Exhibit 7: Bharti’s board structu
Page 183 and 184: In the 1993‐94 academic year, he
Page 185 and 186: consumer products. She was also a R
Page 187 and 188: AcknowledgementsJosh LernerHarvard
Page 189: The World Economic Forum is an inde
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