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Over the years, the Indian private equity market has been growing at a steady pace, with $10 billion of investments in 2014 growing to $29 billion in 2024, representing a CAGR of 11 percent. Within private equity, the share of buyouts has increased rapidly from 15 percent in 2014 to 50 percent by 2024, representing a strong CAGR of 25 percent. The trend here is similar to how developed markets such as the US and EU have evolved where majority of the private equity deals are of a buyout nature.

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This rapid increase in buyouts has been due to a combination of factors that have worked equally for the founders (of family-run businesses) and the private equity firms. Across many family businesses, there is an emerging trend where the second generation is no longer interested in running businesses and want to capitalise on the success of the business and pivot towards other areas, including managing of investments for the family. Moreover, the second generation also realises the importance of building a strong management team that can help the business reach new heights versus the families running on their own and not be able to scale the business to the same level. Having a strong private equity partner signals a move towards management empowerment and helps in attracting Tier 1 talent. The second generation has been crucial in aligning the first generation as they have seen this model play out well in developed markets.

From the private equity perspective, availability of quality talent is an important criterion. In the last decade, the depth of talent, given the growth in the overall economy, has meaningfully improved. Moreover, many CXOs with global and diversified experience are looking to come back to India.

Private equity firms have also built strong portfolio value-add teams internally, which is a combination of mid- to senior-level folks with industry and operating experience. They will guide the investment team and the PE firm in managing a control deal. More benefits include faster decision-making and more autonomy to drive results in a systematic manner.

Most private equity firms also use M&A as a key value-add lever, given you can grow faster by consolidating the industry you are in. Availability of leverage is another reason for increase in share of buyouts. While India is a growth story where majority of returns come from the underlying growth of the business, leverage does add a kicker to returns if appropriately taken.

There are various constructs under which buyout transactions are happening. While a complete sell-out would make the most logical sense, there is a meaningful sub-set of deals that are happening where the founders are okay retaining 25-35 percent stake. This has the added advantage of seeing the upside as the business scales. Founders have also understood that, typically, a private equity firm will stay invested for 5-7 years and will require an exit via an IPO. Post IPO, as the private equity firm sells their stake, founders with a significant minority stake can continue to run a board-governed company and be the largest shareholder.

The trend of increase in buyouts is visible across all sectors, from enterprise technology to financial services, pharmaceutical, industrials and consumer. There has been an inherent push from global private equity firms to do more buyouts in India, given that, globally, they mostly do buyouts. While in the early 2000s, certain Indian firms tried to focus on buyouts, they struggled with the lack of talent, leverage and a deeper understanding of the Indian ecosystem. During this time, as the market had not matured, many global PE firms had to focus on growth investments and did not manage to do buyouts.

The buyout performance has been encouraging across private equity firms. There have obviously been some misses as well. In addition to business performance, alignment on certain key objectives between the private equity firm and the founders would play a substantial role in dictating success of the investment: Governance structure is very important where a proper decision-making framework is aligned.

From the founders’ perspective, they should welcome and empower the new management team and, from the private equity standpoint, they need to provide minority protection rights to the founders.

Another critical area of alignment is exit where the founders need to be okay with both likely and unlikely scenarios as the private equity firm explores various options, including taking the company public or exploring a complete sale to a strategic buyer. Enough time needs to be spent in getting to know each during the process so that misalignment opportunities on key objectives do not arise.

Overall, expect the increase in buyout trend to further continue, given that market forces of talent availability, deepening of leverage and IPO markets are moving in the right direction.

The writer is director & consumer sector lead, ChrysCapital

First Published: Dec 10, 2025, 17:24

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