• Manaswi
• Yashaswi

The day to day transactions of all business entities needs funds which gets channelized either broadly via equity or debt. The main inlets for such investment flow include seed funding, angel investment, private equity investment, venture capital inflow, etc. While Venture capital investment is usually made in a new business venture with lesser quantum of funds at stake, private equity investments usually occur at a much later stage .Thus, private equity investors invest in already mature companies but which are being run inefficiently. Unlike, traditional concept of private equity transactions which comprises a leveraged buyout(LBO), Indian economy has adopted a hybridized model comprising of western elements which are suited to Indian complex regulatory environment. The western private equity investors play a pivotal role in transforming an inefficiently run company by either taking it public or handing it over to a strategic buyer. The Indian scenario again differs in this stance from the West in the sense that these private equity players mostly have a minority stake in the Indian Companies which have concentrated ownership. The need for protection of this minority stake calls for shareholders agreement and relevant provisions under SEBI, Companies Act, Income Tax Act, the foreign private equity investment in India regulations , the RBI guidelines, as well as judicial decisions, among others. The exit strategy provides for a lock in period of one year before the draft offer document gets filed with the SEBI for making offer for sale . The concentrated ownership creates a further hurdle even if the exit option gets included in the shareholders’ agreement especially if the minority shareholders and the promoters are at loggerheads . Also, the promoter’s 20% contribution gets locked for a period of three years, and any contribution above it for a year’s time span. Thus, the lock in and loggerhead issues hamper the prospects of easy exit strategies. Further, the Takeover Regulations, 2011, regulate the Private Investment in Public Equity (PIPE) transactions, wherein twin issues are majorly at highlight , namely the “due diligence” with private equity investors in hold of price sensitive information triggering issues of insider trading and thereby Insider Trading Regulations, 2015 and secondly the definition of control under the Takeover Regulation , including both subjective as well as numerical control, shrouds a doubt as to whether the private equity investors could be said to have a control, thus that needs a case by case analysis, especially given that the protective covenants do not get a welcoming treatment under Indian regulatory regime . Further issues of transparency, lack of professionalism, dynamism, poor corporate governance, limited information sharing and absence of modern management techniques , crop up with promoter controlled businesses in India, as was evident in the infamous Lilliput Kidswear controversy, where foreign private equity investors had no option but to exit Lilliput at 0 returns as part of compromise deal because of their alleged over interference in the Company’s regular activities. Thus, given these myriad of issues surrounding the Indian Hybrid model, the research will attempt to understand the nuances underlying these issues and suggest a way forward to make Indian Companies a lucrative option for the PE investors, especially realizing the pivotal role these traditional leverage buyouts play in the West and molding the same to suit the Indian regulatory standards.

Private equity transactions, western model, leverage buyout, minority stakeholders

"A Critical Analysis Of Private Equity Transactions In India", International Journal of Emerging Technologies and Innovative Research (www.jetir.org), ISSN:2349-5162, Vol.6, Issue 6, page no.452-457, June 2019, Available :http://www.jetir.org/papers/JETIR1908A11.pdf

"A Critical Analysis Of Private Equity Transactions In India", International Journal of Emerging Technologies and Innovative Research (www.jetir.org | UGC and issn Approved), ISSN:2349-5162, Vol.6, Issue 6, page no. pp452-457, June 2019, Available at : http://www.jetir.org/papers/JETIR1908A11.pdf