Business and Finance solutions

It’s still early days, and there aren’t enough numbers to draw conclusions on how the Indian PE story will play out. But gleaning from the PE grapevine and the rumblings in the market, here are 10 pointers. 10 answers that tell the story
Will the PE deal fl owslow down?
Post-March, it will slow down temporarily as promoters adjust to new valuation levels.
By how much will valuations drop?
Investment bankers expect a 20-30% correction in valuations of new deals.

How much will it aff ect returns of PE funds?
Return expectations have been pared down from 30% to 23-25%.

Will the fl ow of PE funds into India dry up?
Established investors with a strong track record will still be able to raise funds. New entrants, however, will struggle.

Will this hurt entrepreneurship in India?
Immediately, yes. In the long run, though, more thorough due diligence
by PE fi rms will lead to stronger businesses being built.

Will things improve if the stock market rebounds?
PE fi rms making exits will benefi t, especially via IPOs (initial public off erings). But, infl ated valuations will once again drive down the quality of deal fl ow.
What is the best-case scenario for 2008?
Investments will more or less maintain 2007 levels ($19 billion, the best-ever in a calendar year).
What is the worst-case scenario for 2008?
Exits will dry up. Foreign fi rms, specifi cally leveraged buyout shops, may cut their exposure to India due to problems at home.
What lessons should PE funds take from this?
Entry valuations should not be benchmarked to stock market prices, but to longterm growth dynamics and business fundamentals.

What lessons should entrepreneurs take from this?
Don’t strike a deal with a PE fi rm that hands out a term sheet within a week.