Indian family businesses outdo global peers in PE preference: Study

Chennai: Family-owned businesses in India are more likely to seek private equity funding, eclipsing their global counterparts, as they look to grow their businesses, according to a survey.

Released by audit and consulting firm PwC, the survey titled ‘India’s Family Business Survey 2019’ stated that 29 per cent of Indian businesses were currently sourcing funds from PE and venture capital firms, against just 16 per cent worldwide.

About 25 per cent of Indian family businesses were about to start using PE capital, the report said.

PwC interviewed 2,953 family businesses globally for the survey, including 106 from India. The survey said, the capital sourced from PE/VC firms by family-led businesses was equal to the funding they received from capital markets.

Bank lending or credit lines and internal sources such as cash flows and family funds, however, remained the top two sources of capital in-use at 81 per cent and 71 per cent, respectively, it said.

While 58 per cent family entrepreneurs considered listing all or part of their business on stock exchanges for raising capital, only 17 per cent said they would consider getting funds from other business families, it stated.

Some of the largest family-owned businesses in India, including Mukesh Ambani’s Reliance Industries Ltd and Sunil Mittal’s Airtel, have tied up with PE firms to raise growth capital and to deleverage their group balance sheets.

Highlighting the growing significance of private equity capital for Indian businesses, the report said, over the last few years, private equity and venture capital investors have invested billions of dollars in Indian companies, either in minority investments in family-owned businesses or making outright purchases of such businesses.

“Historically, family businesses in India had generally been reluctant to raise funds from private equity. However, as family businesses look at growth, one of the avenues being explored increasingly, is funding via PE – which often serve as a stepping stone towards listing of businesses. We have seen numerous instances where PE funds handhold private businesses in their transition from private to public. This also works for PE funds as it gives them exit at a multiple of their initial investment,” said Ganesh Raju, leader – entrepreneurial and private businesses, PwC India.

“This is a trend which we feel will only grow in the future as Indian businesses buoyed by economic growth seek expansion in new markets and territories. This apart, private equity funds are also engaging with family businesses aggressively.”

NT Bureau