2017 Is The Biggest Year For PE/VC Exits
For private equity (PE) investors and venture capital (VC) funds who have been waiting in the wings to reap profits from the companies they have invested in, the time may just be ripe.
Data available with research firm Venture Intelligence shows fund managers have already recorded 213 exits worth $9978 million so far this calendar year, making 2017 a bumper year for PE/VC exits. And, that is not all. The industry has also witnessed the highest number of PE-backed IPOs. In January-October 2016, total number of PE/VC exits stood at 198 with the total value amounting to $7373 million. During the said months in 2015, as many as 240 PE/VC exits took place worth $9098 million.
Going forward, the exit momentum is expected to continue, especially in the backdrop of India’s rating upgrade by Moody’s Investors Service. The stock market (both the Sensex and Nifty) is likely to reap the benefits with an immediate surge over the next few weeks. The rupee, too, is expected gain a stronghold.
Chandrajit Banerjee, Director General at The Confederation of Indian Industry said: “The upgrade in India’s rating by Moody’s comes as a major boost to market sentiment on India and a recognition of the transformational reforms being conducted by the government.”
Take a look at some of the successful exits this calendar year. SAIF Partners garnered a 26.5x return on its investment in One97 Communications in May 2017 when SoftBank Corp acquired a stake in it in a secondary sale. In a public market sale, TPG Capital made a 4.6x return from its investment in Shriram City Union Finance.
Typically, a single PE investment cycle usually lasts 5-7 years after which PE firms normally exit by way of trade sale, public listing, recapitalisation and secondary sale. In VC investments, the exit tenure may be longer.
Trade sale is the most common exit for private equity investments as trade buyers in the same industry are often more likely to realise synergies with the business and are therefore, the most natural buyers of the business. Typically, public listing takes place during positive market conditions.
Some of the top PE-backed IPOs in 2017 include AU Small Finance Bank’s listing that helped Warburg Pincus, IFC, ChrysCapital, Kedaara Capital exit and ChrysCapital’s exit from Eris Lifesciences’ IPO.
As far as new investments are concerned, fund managers are preferring to take a rather cautious approach. In the past few months, economic reforms such as GST and the bankruptcy code led to a bit of lumpiness in the domestic economy, prompting India Inc to adopt a wait and watch policy towards new investments - which experts say is on expected lines. But given that the sovereign updrade has come in, that too after 13 years, “reforms will be supportive of higher growth with lower debt in the medium term,” said Banerjee. “The upgraded rating of Baa2 will enable lower cost of borrowing in international markets for Indian businesses and attract more foreign fund flows into India,” he added.
