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Private equity firms eye IPL franchises

The stock markets are in a tailspin and private equity (PE) players have found the value of their portfolios declining. Good enough reason for them to latch on to the bull run in cricket.

It seems franchisee owners are locked in talks with these players to offload a part of their stakes in their respective teams.

Investment banking sources say, many team owners are in the market to raise funds. "We are given to understand that minority stakes will be diluted by the owners. Names of franchisees going around include Deccan Chronicle (Hyderabad), Vijay Mallya (Bangalore), Ness Wadia and Preity Zinta (Mohali) and Shah Rukh Khan's Red Chillies Entertainment (Kolkata)," an investment banker, who did not wish to be named, said.

Chennai Super Kings, the team owned by India Cements (ICL), has been approached by private equity investors. Admitted N Srinivasan, vice chairman and MD, India Cements: "A few private equity investors met me. They were interested in knowing if I would be willing to dilute my stake in the team's equity. I have told them that we are not in favour of diluting to anybody for the moment."

Said UTI Venture CEO K E C Rajakumar, "Today PE players are opportunistic. With the Indian cricket team winning key matches, the momentum is clearly towards IPL. It is a new business. Perhaps worth exploring. The ideal period for these investments will be four years-plus and if you can catch the investment young, you get it at lower valuations."

Srinivasan explained to TOI his decision not to dilute any stake now. He said, "The valuation of Manchester United is 9 billion. The sheer number of people viewing cricket in India is much more than soccer viewers there. Assuming I manage to get 5% of that, you will know what I mean if you do your math. It is of course important that the tournament should take off in its first episode, which I am sure it will."

PE investors insist their interest in the cricket business is based on sound logic. Said one of them, "Let's get it straight. Mukesh Ambani, Vijay Mallya, GMR are businessmen who are not given to doing stupid things. Also, keep in mind that Anil Ambani and K V Kamath (of ICICI Bank) also wanted to enter this business. The cricket business needs a different line of thinking, and once cracked, it can be hugely successful."

They claimed that some of these established business houses might face a different kind of problem on how to convince investors that this 'diversification' is worth the money spent. "Cricket as a business is new and for most companies, they need to justify to their investors. By diluting minority stakes, franchisee owners will de-risk their business, apart from gettting funds for advertising and brand building," an investment banker said.

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