The IPO route of exit by a private equity (PE) player is seen as the most efficient way of exit, but in India, irrespective of a vibrant primary market, the number of exits through the IPO route is less compared to other exit options available.
Data from Venture Intelligence shows in 2007, PE firms exited in 65 Companies, of which only 16 were through IPOs, while 2006 saw 19 exits through the IPO route from a total of 37 PE exits. The year 2005 saw 42 exits, but IPOs’ share was just 17. Experts attribute this to flexibility available to PE firms to exit through more lucrative routes than an IPO. Dhanraj Bhagat, partner, specialist advisory services, Grant Thornton, said, “While IPO exits may be less, many exited through strategic sales via the exchange after listing. They would have expected better returns post-listing. Also in the past few years, many Companies preferred strategic sales i.e. sale to financial investors, competition & joint venture partners, which is not possible in an IPO. Also, a presence of quality investors like PEs makes an issue more saleable. Many Companies in the past years opted to divest some stake during the IPO and some, post-listing.”
Though PE firms exited 170 Companies since 2004, only 58 cases, or 34%, were through IPOs; the others took the M&A route or sold back shares to the promoters. The year 2007 saw 95 maiden share offers, while 2006 and 2005 saw 73 and 50 such offers, respectively.
Some experts say there were many instances of a company being bought over before an IPO. Niren Shah, managing director of Norwest Venture Partners, a private equity firm, said, “There were instances where many Companies were taken over even before they planned for an IPO, hence an exit through IPO did not take place at all.”
He said: “The private equity and venture capital industry is still at a nascent stage in India, hence it is not fair to compare exits through IPO in India and in other economies, where an IPO is the most efficient way of exit.” Between 2004 and 2007, PE firms invested $16 billion in Indian Companies and experts believe that many of them could exit next year.
Prithvi Haldea of Prime Database said, “The exit of private equity funds via IPOs has slowed down, possibly due to a lull in the primary market. However, it is the most efficient way of
exit across the globe and most PE players have entered in 2003-04. So, we might see their exit in 2009-10 in a big way.”
Source: Financial Express