The overall health of family businesses has been a key driver of India’s economic growth, and has been an important influence on India’s overall entrepreneurial landscape. As an increasingly globalised business environment dictates trends locally, family businesses—led by new generations of business owners—need to think creatively about business growth and financing solutions that will help them evolve.
We’ve found that second and third generations of business families are often thinking beyond the operations of their businesses alone: They are developing strategies to broaden and diversify views in their boardrooms, and are considering how to make their businesses more international, professional, and effective for new customers. A key part of this is addressing the need to raise capital for their businesses, not through rigid, traditional channels alone, but through lenders who promote flexibility and creativity to help maximise companies’ success.
Seeking Flexible Financing Many of these later-generation promoters are looking at more flexible forms of financing rather than vanilla bank loans. Oftentimes, alternative financing providers are more able to offer solutions that are tailored to each company’s needs.
In our experience, one example is Gland Pharma, a leading pure-play generic injectable pharmaceutical products company. Our team first developed a relationship with Gland’s promoter—a second-generation family business owner—because he sought a partner who could provide the operational expertise to help his company grow and develop as a multinational leader in health care, in addition to securing a long-term financing solution.
As it is KKR’s aim to provide flexible capital to businesses and entrepreneurs, and add value, our investment allowed the company to significantly accelerate its growth in India and globally, more than doubling its capacity. We’re proud of our partnership with Gland because we were able to build upon the company’s existing foundation and achieve improved performance alongside Gland’s promoter and experienced management team.
Infographic: Sameer Pawar
Gland also serves as an example of how promoters today are becoming more open to divesting controlling stakes of their family businesses for the broader benefit of the company—a relatively recent and growing trend in India. Historically, company founders were far more apt to groom their children and family members to take over businesses. However, promoters are finding that the increasingly complex business environment calls for more specialised, international expertise. As a result, they are looking beyond their families and friends to find the right executives to conduct cross-border acquisitions, create new partnerships, enter new verticals and realise synergies.
Finding an Operational Focus Another key consideration for promoters is finding partners who are focussed on operational initiatives. We’ve found that this is an increasingly important consideration through the work of KKR Capstone, a team of operational experts who work exclusively with KKR’s portfolio companies. The types of questions this team has received from promoters, and the projects they’ve assisted on for our portfolio companies have underscored the fact that promoters are thinking bigger and more creatively to encourage business growth.
Alliance Tire Group (ATG), a leading manufacturer of global off-highway tyres, serves as an example. When we partnered with ATG in 2013, providing capital to the company was less of a critical consideration than providing operational expertise to foster its growth. ATG’s promoter saw value in KKR’s experience in the manufacturing and auto sectors, in our global network to help ATG achieve international growth, and our ability to set achievable targets to help the company scale capacity. The KKR Capstone team worked with ATG to strengthen their organisational structure and increase volume. During our three-year partnership, ATG was able to expand in key markets across the US and Europe and increase profitability.
These are just some of the initiatives that KKR and KKR Capstone have brought to the table, and we consistently try to develop similar strategies for companies across our portfolio.
Developing Strategies for the Future India is positioned to see immense growth, and homegrown businesses have tremendous potential to expand and bring their specialised products and services to a global audience. With the help of innovative partners who can add value beyond capital alone, companies can develop even more targeted growth strategies.
At the baseline, family business is an exciting segment of our economy because they are so entrepreneurial in nature. Promoters have a strong emotional connection with their companies, and have a vested interest in seeing their businesses thrive well beyond their ownership years. This entrepreneurial spirit will help elevate India’s economy to new levels on the whole, and raise India Inc’s brand internationally.