Tightening the Hold ; Private-Equity Honchos Are Putting Their Oars Into the Companies They've Invested in to Ensure They Survive the Downturn.

Business Today › July 08, 2009

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Summary

In September 2008, one of the stores of kidswear brand, Lilliput, in Vashi on the outskirts of Mumbai, had a rather unusual walk-in. It was a day when Sanjeev Narula, proprietor of Lilliput, happened to be at the Vashi store. Narula recounts how the visitor advised him to change the display of clothes according to various themes and colours. He also suggested that Narula introduce an affordable range of clothing. This perhaps wasn't the first time Narula has received such advice of the unsolicited kind. On this occasion, however, he had little choice but to take it. The visitor to his store was one Kishore Biyani, Founder of the Future Group, and creator of such successful retailing brands as Pantaloon and Big Bazaar.

Now Biyani isn't known for gallivanting around town, striding into random stores and proffering counsel (although he's known to hang about his own retail formats on weekends, keenly taking in consumer behaviour). Biyani had some solid reasons for visiting the Lilliput store, and more than a few of them are strategic. Indivision Capital, a private equity (PE) firm that's a part of the Future Group, had picked up a stake in Narula's firm; Biyani was doing his bit to ensure a return on that investment. What PEs bring to the table (in downturn) Access to bank finance as PE-backed firms are more credit-worthy Access to new customers or to other investee companies of the PE fund Keep a tight control on various costs Professionalise company management

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Tightening the Hold ; Private-Equity Honchos Are Putting Their Oars Into the Companies They've Invested in to Ensure They Survive the Downturn.

Not too many promoters of the profile of Biyani would go to such an extent to back their PE ventures, but the message in this tale is that PE firms are pulling out all stops to get closer to their investee companies. And there's ample reason for that. Along with investment banks, insurance firms and hedge funds, another class of investors that took a battering in the wake of the sub-prime crisis in the US is PE. That's because many of the companies they've invested in often on the back of huge leverage have little cash coming...

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