In the last three months, Reliance has sold less than 33% stake in its newest arm Jio Platforms for more than 1.5 Lakh Crore rupees. It is a historical achievement because no other company in India has attracted such huge investments in such a short time and that, too, in the most difficult current phase when India and the whole world is crippled due to Covid-19 pandemic crisis. The investments are surely beneficial to the Reliance group. We can also learn something from these investments. Here are the two lessons I learned.
1) Strategic and financial investors bring different value to the company
On 15th July 2020, in its AGM, Reliance Industries announced that Google will invest INR 33,737 Crores in Jio Platforms for a stake of 7.73%.
Google is the 12th investor in Jio Platforms in the last 3 months. Facebook is the first investor, which invested INR 43,574 for a stake of 9.99% in April 2020.
The two tech giants (FB and Google) have collectively picked up 17.72% stake in Jio Platforms at an Equity valuation of Jio Platforms of INR 4.36 Lakh Crores.
The other 10 investors among themselves have picked up 15.10% stake in Jio Platforms at an Equity Valuation of Jio Platforms of INR 4.90 Lakh Crores.
So, Facebook and Google were given equity stake at 11% discounted rate than other investors.
Why?
Generally, investors invest in companies with two different motives:
Strategic Interest: An investing company invests in other companies that may align with its own product or services and can help it grow its own market and help it create more value. The strategic investor brings more value to the invested company in addition to money. For example, it may bring better technology, know-how, marketing network or brand value. Due to this, strategic investors may get the equity stake at comparatively cheaper rates than purely financial investors.
Financial Interest: These investment companies are private equity firms that invest in companies to earn a healthy return on their investments. They cannot contribute much towards the growth of the company in addition to the money they bring in. Hence, financial investors get equity at a little higher valuation.
2) The strategic investment is more win-win
Facebook and Google are strategic investors in Jio Platforms. They have invested in it with an intention to grow their own businesses in India through Jio Platforms and they will in turn help Jio Platforms through their own huge technical know-how, expertise, reach and brand image.
Tie-ups between FB-Google and Jio Platforms are more win-win than purely financial investors, because the financial investors may get better returns if Jio Platforms grows. But, in addition to that appreciation, FB-Google will also get a lot of other benefits to their own businesses in India and elsewhere. Also, Jio Platforms will benefit much more from these two tech giants than it will from the other purely financial investors.
We must agree that Ambanis understand the value of money and strategy better than us. Some money has more value than the other. Reliance has taught us that strategy is more valuable than money, because it can create more value in the long run.
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