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Bain Capital's Acquisition of Adani Capital: A Strategic Move to Tap into India's 'Underbanked' Market
The Acquisition and Its Objectives
Bain Capital, a leading U.S. private equity group, recently announced its acquisition of Adani Capital, a strategic move aimed at penetrating the 'underbanked' market segment in India. In July, the Boston-based firm agreed to purchase a 90% stake in both Adani Capital and Adani Housing, effectively buying out the private stake held by Indian billionaire Gautam Adani and his family. This acquisition is set to provide a vital lending platform to India's micro, small, and medium enterprises (MSMEs), a rapidly growing market, according to Barnaby Lyons, a partner and global co-head of Bain Capital Special Situations.
The 'Underbanked' Market in India
The 'underbanked' nature of India's economy presents a significant need for innovative finance platforms like Adani Capital. This specific business operates in a segment that includes small lending to micro SMEs, the agricultural sector, and affordable housing, all of which benefit from favorable demand-supply dynamics. Despite the structural growth trends in this segment, the granular nature of the lending makes it challenging for traditional banks to access.
India's MSMEs and the Credit Gap
India's MSMEs contribute approximately 30% of the country's gross domestic product (GDP). However, only 10% of these enterprises have access to a formal source of credit to support their growth, according to a statement from Bain, which cites Indian government data. Rishi Mandawat, a partner at Bain Capital, stated that the Adani Capital team has built a scalable lending business that supports entrepreneurship and is working to address the over $300 billion unmet retail MSME credit demand in India.
Bain Capital's Investment and Future Plans
Bain has committed $120 million in primary capital to the company, along with an additional $50 million liquidity line in the form of non-convertible debentures. Gaurav Gupta will continue to serve as Adani Capital's managing director and CEO, retaining the remaining 10% stake in the company. Adani Capital, the non-banking financial arm of the Indian conglomerate Adani Group, launched its lending operations in April 2017.
Adani Group's Response and Future Outlook
Gautam Adani, chairman of the Adani Group, expressed his satisfaction with the deal, stating that having a reputable investor like Bain Capital step in will significantly boost the business's growth. This deal comes after a challenging year for Adani, who faced allegations from U.S. short-seller firm Hindenburg Research. Despite the allegations and subsequent fallout, which led to a significant decrease in Adani's net worth, Bain Capital remains confident in the acquisition and the future of Adani Capital.
Conclusion
The acquisition of Adani Capital by Bain Capital highlights the potential of India's 'underbanked' market and the opportunities it presents for global investors. This strategic move is expected to significantly boost the availability of credit for India's MSMEs and contribute to the country's economic growth. The deal is set to close in the fourth quarter of this year, subject to regulatory and market approvals.
Implications for New Businesses: A "Hot Take"
Bain Capital's acquisition of Adani Capital not only underscores the untapped potential of India's 'underbanked' market but also sets a precedent for new businesses looking to penetrate emerging markets. This strategic move by Bain Capital demonstrates the viability of tapping into underserved sectors, such as micro, small, and medium enterprises (MSMEs) in India, which have been largely overlooked by traditional financial institutions.
Opportunities and Challenges
For new businesses, this development signals a wealth of opportunities in providing innovative financial solutions to 'underbanked' markets. However, it also presents unique challenges, including navigating complex regulatory environments and managing the risks associated with lending to smaller enterprises.
Strategic Planning
New businesses, particularly those in the financial sector, should consider this development as a call to action to reassess their strategies. They should explore opportunities in emerging markets and consider how they can provide services to underserved sectors.
Adapting to Change
The acquisition underscores the importance of adaptability and innovation in today's rapidly changing business landscape. New businesses must be ready to pivot their strategies in response to market trends and seize opportunities as they arise.
Final Thoughts
In conclusion, Bain Capital's acquisition of Adani Capital serves as a compelling case study for new businesses. It highlights the potential of 'underbanked' markets and underscores the need for innovative, adaptable business strategies in today's dynamic global economy.
Article First Published at: https://www.cnbc.com/2023/08/11/adani-capital-deal-will-allow-access-to-indias-underbanked-bain-.html
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