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July 4, 2011 Livemint.com

PE investors buy 60% stake in e-publishing outsourcing firm

Private equity investors Franklin Templeton Private Equity Strategy, a fund managed by Franklin Templeton Asset Management (India) Pvt. Ltd; Aureos South Asia Fund and ePlanet Capital have bought a majority stake in Newgen Imaging Systems Pvt. Ltd, a Chennai-based unlisted e-publishing outsourcing firm, two people familiar with the development said.

“We are convinced about the opportunity in the outsourced publishing space, specifically in the opportunity that presents itself in the digitization of books,” said Balaji Srinivas, managing director, Aureos India Advisors Pvt. Ltd.

The buyers have purchased a 60% stake in Newgen for around Rs.100 crore, said a person directly involved with the deal, asking not to be named as he is not authorized to speak to the media.

The stake was purchased from Carlyle Asia Venture Partners II, a growth capital fund managed by global investment manager Carlyle Group, which invested $10 million in 2004 and increased its stake by investing later in 2006. Carlyle will exit the company with the stake sale, both the persons cited above said.

A Carlyle spokesperson declined to comment.

Chennai-based investment bank Veda Corporate Advisors Pvt. Ltd was the adviser to the deal.

Newgen, founded in 1996, provides outsourced publishing services, particularly to publishers in the US and Europe. It offers project management service for books and journals, taking on processes such as author liaison, development editing, copy editing, design, artwork and permission, typesetting, composition and ebook delivery.

Some well known e-publishers include Macmillan Publishers, International Typesetting and Composition, Mizpah Publishing Services and Cadgraf Digitals.

“The industry is not very organized and very few well-known players exist,” said Pradeep Udhas, executive director and national head, information technology and business process outsourcing, at consulting firm KPMG India.

The Indian e-publishing offshoring industry is estimated to grow at a compounded annual growth rate of 35% to $1.2 billion by 2012, employing nearly 74,000 people in around 1,500 companies, according to KPMG.

“E-Publishing is primarily growing on account of increased outsourcing being done internationally in the publishing space,” said Udhas. “Other drivers include increase in broadband penetration, private schools adopting hybrid teaching methods, and foreign universities offering online courses.”

Secondary deals, or sale from one private equity fund to another, has emerged as a popular mode of exit by investors due to volatility in the capital markets. The value of secondary deals more than doubled to $125 million across eight deals in January-June this year, compared with $59 million across nine transactions in the year-ago period.

Carlyle Asia Venture Partners II, launched in 2002 with $164 million under management, made venture and growth capital investments in Asia. Some of the other exits made by it include Quality Engineering and Software Technologies Llc and Worldzen Holdings Ltd.