December, 2022
Hot take: middle market buy and sell sides focussed on family run medium sized businesses are very ripe in India. I haven’t sized the market, but I would presume there are at least 10k businesses with $10-20M top line and 20-30% earnings margin that are run by families.
These businesses range from niche furniture manufacturing for hotels to distributing and reselling ball bearings. Having spent some time with the owners of such businesses, it’s clear that they are concerned about two main things - funding CapEx via debt and succession.
These owners are not financially sophisticated to stomach the risk of debt and leave a lot on the table by underfunding CapEx. Secondly, these owners are the engines that keep the business running; there’s no business without them. Hence, succession is hard. Businesses just die.
If the PE buy side can somehow crack the motion of picking minority stakes to begin with, use the equity to fund CapEx, figure out succession, over time increase growth and ownership, and exit via M&A or listing, there is a juicy return to be made. The sell side will tag along.