TA Associates: Nine years and counting

Interest from global private equity (PE) investors is not new to India. They invested a record $34 billion in the country last year. With big global PE funds pouring in more money—a sign of growing confidence in India’s growth story— experts are hopeful that the momentum will continue in 2019.

TA Associates is one of the aforementioned believers in the India story. It has been investing here for the past nine years. The firm, regulated by the U.S. Securities and Exchange Commission, has an investment spread of nearly $650 million across 13 firms.

Its portfolio includes payments company BillDesk, consumer electronics company Micromax, TCNS Clothing, which owns the women’s wear brand “W”, and broadband services provider ACT, among others. In an interview with Fortune India, Dhiraj Poddar, 44, managing director, TA Associates, talks about the PE firm’s strategy of investing in India. Edited excerpts:

Tell us about your investment thesis.

We are a late-stage growth equity investor. Our investing approach is flexible; often, we are providers of liquidity to early-round investors and founders. Also, we fund the business in its pursuit of organic or inorganic growth. We are comfortable taking minority and majority stakes. That’s the flexibility we’ve always enjoyed, and is in line with our investment style across the world. I think, at some level, the idea is that we do what is right by the market as opposed to overlaying an inflexible approach on it. We are very sector-focussed and have made investments in financial services, consumer, healthcare, and business services. Technology is an important sector for us globally, with over 40% of our portfolio in that space. Our portfolio in India is a good mix of these sectors. We also tend to back industry leaders, such as BillDesk in payments, Dr Lal PathLabs in diagnostics or TCNS in women’s apparel.

How do you differentiate in your approach between minority and majority deals?

Our behaviour does not differ based on our stake. We don’t come in with the agenda of changing something in the business; instead, we focus on where we can contribute. There’s a difference between being intrusive and being constructive. We do the latter and aim at being good partners with the management even when we take a majority stake. We back an existing team, and then we ask ourselves, what else we can do to help the team succeed or upgrade as the business grows. We do have certain filters that we use when we are in a minority situation and maybe a slightly different lens on a buyout deal. The one key difference is exit. You can control your exit when you’re sitting on a majority stake, whereas in a minority, we will depend upon the other shareholders to provide us the right exit.

Is it easy being a large cheque investor in India?

We have flexibility to invest between $70 million and $400 million. We have shown some flexibility in the past to back companies that have excited us. If we just go back and look at our investments every year, you will find that we have increased our exposure in the market. Ours is a global fund so we don’t have a country allocation; it’s the same fund investing across the U.S., Europe, and Asia. So far, it’s been a good experience and our companies have done reasonably well. We have got a few exits, a few initial public offerings, and had a few partial exits in some of our unlisted companies. We are happy with the way our portfolio has shaped up here and we intend to continue to step up our investing.

Considering that you prefer proprietary deals, how do you track companies that you would like to back?

We track our sectors closely by connecting with companies well before they are ready to take money from us—that’s part of our origination efforts. So when a deal comes to our table, we are hopefully not learning about the business at that point of time. We are not unique in what we do, but we have a lot of focus on doing this on an ongoing basis. It is not rewarding all the time. Sometimes we can spend years being in touch with a company and nothing happens. But that’s something that differentiates us in the marketplace.

Is there pressure to exit?

Exits tend to be slower in India than what one sees in some of the developed markets. As a firm, we understand that. We are a 10-year fund and are, thus, in a position to not create pressure on our companies for exits. But eventually, as financial investors, we need to deliver capital and returns back to our investors. So, yes, we do focus on exits. What we try and do is to minimise the disruption to the management team when it comes to our exit. Any transaction we do will need bandwidth, so we try and time it in such a way that it also coincides with the needs of the business or get a transaction which works for the business and allows it to move to the next level.

What are your plans for the next two years?

The idea is to continue to step up investments here. We would like to find liquidity where our investments are mature. We are not thematic investors, so I don’t have a target of investing a specific sum in, say, healthcare, consumer or financial services. Having said that, we are probably under-indexed in sectors like financial services and consumer. Globally, we have a track record of investments in asset managers and areas like personal care and foods. We would replicate some of those bets. So we will look to find more investment opportunities in these spaces. One big area for us globally is tech and we are finding a lot of emerging businesses in India in that space right now. We find fintech also very interesting, given the size of the opportunity.

What are your challenges?

Pricing is, more often than not, a challenge in a competitive market like India. I think it gets pretty competitive, especially in the larger cheque sizes. Hence our approach is to focus on areas we know and understand best, so that we can step up as needed. Our sector knowledge also equips us to work closely with our companies to grow them and make them more strategically important.

This story was published in the March, 2019 issue of the magazine.