Portfolio company
Punjab Tractors |
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Company website | www.swarajenterprise.com |
Business sector | Industrials |
Country of operation | India |
Market | South Asia |
Investment status | Realised portfolio |
Investment type | Buyout capital |
Date of original investment | 2003 |
Date of exit | 2007 |
Exit method | Trade sale |
Office | Mumbai, India |
Background
Actis's groundbreaking investment in Punjab Tractors was India's first successful private equity-backed privatisation. Punjab Tractors is India's second largest tractor manufacturer, with a solid distribution network, excellent brand recognition and indigenous product development capabilities. In 2001, the Boston Consulting Group and the Indian newspaper, The Economic Times, named Punjab Tractors among the ten best-managed companies in the country.Tractor manufacturing is one of India's core industries and Indian Tractors are competitive in price and quality globally. Indian companies had begun exporting to the US and European markets where they were successful as a result of their low cost.
Their needs
In 2002, the State of Punjab decided to sell its 23.5% shareholding in the company by tender. The tender process invited interest from both trade buyers and from private equity investors. Their objective was to achieve a good price for their stake in the company while making sure that both political sensitivities and regulatory considerations were properly addressed.The disinvestment process was lengthy and much discussed in the press. In addition the mandatory public offer requirements, stock market price speculation close to the bid date, restrictions on foreigners borrowing domestically for acquisitions, and an inflexible share purchase agreement contributed to an extremely complex landscape - one which required specialist skills and knowledge to navigate successfully.
Our solution
Actis had been following Punjab Tractors over many years before the privatisation process started. As a result we built up considerable knowledge of the company and its competitive advantages.We gradually became positive about backing the management team in the privatisation, and our knowledge of the Indian environment made us comfortable about working with the Indian financial institutions which would remain as significant shareholders after privatisation. We therefore took the initial step of buying a 4.9% undisclosed stake in the company in the market in late 2002.
Actis's privatisation bid strategy had the merit of backing the current management team, as opposed to partnering with trade buyers which would have brought significant integration risks in an area in which there is little experience in India.
Realising the benefits of seeking pricing and funding advantages, we looked for co-investors and successfully managed the syndication in-house, bringing in Government of Singapore Investment Corporation. By raising debt overseas to finance the bid on a non-recourse basis Actis was better placed than its competitors, many of which had limited capacity to borrow due to balance sheet constraints.
In July 2003 the strategy paid off with a successful bid, giving Actis a further 23.5% of the company (a total of 28.4%) and making this the first privatisation in India to be successfully backed by a private equity investor.
Actis's added value
Actis introduced a dealer/distributor in the US. New relationships were developed in Italy, South Africa, Turkey and the Middle East to source components and sell products. Actis worked as a part of Punjab Tractors' management team and was responsible for much of the improvement in its operations, especially in the areas of cost reduction, new product development and collections of receivables.Actis introduced two firms of consultants, Ariba to improve the procurement processes and Accenture to improve the effectiveness of the dealer network. Actis also prompted changes to the management team and to the board of directors, introducing high quality non executive directors from a range of disciplines.
In 2007, a sale to a strategic purchaser was completed when Actis sold its stake to Mahindra & Mahindra - India's largest tractor company.