Record PE Funds Exits In 2015 Signal Economy On Right Track

Earlier this year, when French IT services giant Capgemini acquired New Jersey-based IGate Corp for $4 billion, it paved the way for an exit to IGate's private equity backer Apax Partners. It is understood that the fund manager made a 3.7x return on the exit.

Well, this is not the only one. There are several other profitable exits that have left the investor fraternity a happier lot this year. More recently, private equity giants IDFC PE, GIC, Oman Investment Fund, DB Zwirn and SBI-Macquarie exited Viom Networks when American Tower Corporation acquired a majority stake in domestic telecom tower company. Both these exits have marked a strategic sale where a deal has been struck between two corporates. In a secondary transaction, where a private equity firm sells its existing stake to another financial investor, TA Associates and Indian buyout specialist India Value Fund Advisors picked up a controlling stake in high-speed broadband services provider Atria Convergence Technologies. India Value Fund, which was an existing investor in the company, reinvesting through its new fund.

Year 2015, which has been a bumper year for exits, surely seems to have opened up several exit routes to fund managers. Even in smaller transactions, a host of private equity and venture capital investors have managed to cash out profitably and in turn return capital to their investors or limited partners as they are known.

Sure, they have had a dream run this year with the industry recording highest exits by fund managers, both in terms of numbers and value in the country. As per data available with research firm Venture Intelligence, the total number of exits in the first 11 months of 2015 stood at 207, a significant jump from the previous calendar year which witnessed as many as 194 exits across 12 months. What’s more, in terms of value too, PE and VC investors just got richer. They have been able to make $8.7 billion in the January-November period, which is also way higher than what they made in the entire 2014 where investors made $4.3 billion. In 2013, they could encash as much as $4.7 billion across 137 transactions.

The spurt in exits seems to have eased the worry for many private equity and venture capital firms who were earlier not being able to cash out profitably due to a slowdown in the economy and weakness in secondary markets.

“There were many exits pending in the industry and there was a lot of pent-up demand. Now that the markets have opened up for exits, several investors are cashing in on them,” said a corporate lawyer with a prominent law firm on condition of anonymity as he is currently advising a host of mid sized companies to go in for strategic sales and public listings which will inturn pave the way for exits to their respective investors.

“Revival in economic growth and capital markets could provide a boost to exits over the next few years,” said Sanjiv Kaul, managing director at home-grown PE biggie ChrysCapital, which itself was recently in news for clocking over 13 times the returns it had made from its 7 year old investment Mankind Pharma. “India is in a sweet spot with accelerating GDP growth and stable macro indicators,” said Kaul in an earlier interview.

This year, of the total of 207 exits, 124 were done through Public Market Sales and another 51 from strategic sales. The remaining were through BuyBacks and Secondary Sales. Also, of the total exits, 37 happened in startups alone. Now, what is noteworthy here is that 32 exits out of the total 37 were through strategic sales which actually also throw light on a consolidation phase in the new entrepreneurial landscape which means a lot of smaller ventures are already being grabbed by the bigger ones. If the current trend is a precursor to what lies ahead, more early stage ventures will be up for grabs in the next 1-2 years.

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. 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 as prevailing at present.