Morpheus Capital Advisors proposes media private equity fund worth Rs 900 crore

By Prajjal Saha & Dhaleta Surender Kumar , afaqs!, Mumbai | In Media | January 05, 2009
The media fund, launched in association with o3 Capital and Maxus, is very similar to the TOI Private Treaties launched three years ago, but on a diversified scale

Three & #BANNER1 & # years ago, Bennett, Coleman and Co. Ltd (BCCL) launched private treaties under which companies were offered media inventory in lieu of private equity in their companies. Morpheus Capital Advisors has proposed to launch a private equity fund, which will work along similar lines, but on a diversified scale. It will use cash and media resources to invest in portfolio firms.

The fund is called the Morpheus Media Fund and it is being promoted in partnership with o3 Capital. Morpheus Capital Advisors is the AMC (Asset Management Company) for the fund, and Maxus is the media advisor.

The fund proposes to procure inventory from leading media owners across the country and buy equity in various mid-sized companies across sectors that need advertising for growth.

The media inventories will be provided to these mid-sized companies and, in return, media companies will get units in the fund in proportion to the inventory utilised.

Balu Nayar, managing director, Morpheus Capital Advisors, tells afaqs!, "The objective of the fund is to help the creation and growth of new Indian brands in the consumption sectors - primarily FMCG and also consumer services, including education, health care, telecom and financial services."

"The fund will approach all such investments purely from an equity growth perspective, and there will be due rigour and caution in investment decisions," says Nayar.

The fund proposes to raise a corpus of Rs 900 crore, which is significantly smaller in size as compared to the efforts of individual media owners in this area. It is estimated that the BCCL private treaties are worth $375 million (around Rs 1,875 crore).

The Morpheus Media Fund will include inventories from various media categories and will be divided accordingly - 48 per cent from print companies, 38 per cent from television companies, 10 per cent from outdoor media owners, and 4 per cent from radio players.

The fund also proposes to diversify the investments in various sectors such as 25 per cent in consumer services (which is the highest), followed by 23 per cent in FMCG, 11 per cent each in financial services and hospitality, 10 per cent in telecom, and 8 per cent in retail. The remaining 12 per cent will be invested in various other sectors.

The fund is expected to terminate at the end of five years from the final closing date. The term can be extended by a maximum of two additional periods of one year each. For media owners, the lock-in period is three years, after which they can transfer the units to a third party. Morpheus plans to list its units on a recognised stock exchange after the minimum stipulated period of three years.

Although, the deal is essentially a cashless one, media owners will have the option to pay partly through inventories and partly through cash. However, the fund will have a mix of investors on board, which will also include cash investors.

When asked about the initial response to the media fund, Nayar says, "The response from potential partners has been good and there are some key media owners on board." However, he declined to reveal anything further because the fund is still at an early stage in its lifecycle.

Nayar also says, "An investee firm pipeline is also on board."

afaqs! has learnt that a proposal was sent to Mid-Day, which was further forwarded to The Indian Newspaper Society (INS).

In a letter to its members, the INS president, Hormusji Cama, says, "If this trend is allowed to gather roots, the industry will end up with diminishing cash flows and there is no guarantee that the equity offered will be encashable on the due dates."

Cama has sought the views of and feedback from the INS members, which are still awaited.

However, Nayar clarifies that the risk factor involved in the fund is the same as the normal equity risks associated with a fund.

"In the case of the investee firms, apart from corporate, financial and structuring advice, strategic marketing advisory services will be provided to help build their brands and thus mitigate marketplace risks," he adds.

He also points out that the size of the fund is less than 1 per cent of the Indian advertising market.

The targeted return on investment is expected to be 3-5 times the contributed capital.