As buoyancy transformed into nightmare in the global financial market, Indian private equity players, for whom the exit through initial public offer (IPO) seems impossible, are exploring the ways to find an exit from their investments. Secondary deals, exercising drag-along rights and stake sale to FIIs, all of which are not so common in Indian PE scenario, are expected to increase in the recent future as floating IPO by the companies remain a fantastic idea in the current market tumble.
In 2007, about 95 IPOs were floated, out of which 16 PE players made the exits. However, this year, as of today, about 9 PE exits were made out of a total of 36 IPOs. Two months back, through a secondary deal, Azim Premji had bought a 10% stake in Subhiksha. This transaction was done by Premji’s personal investment entity Zash Investments Ltd from ICICI Ventures, a private equity arm of ICICI Bank. Subhiksha has indefinitely deferred its IPO plan.
Darius Pandole, partner, New Silk Route Advisors, said, “With the entry of more PE funds in India, exits by way of secondary deals will be common in India. Apart from the secondary deals, more sellouts to FIIs who are keen on entering specific sectors or countries such as India will happen. Also, more number of strategic sales to investors is likely to be witnessed in the recent future.” In March this year, New Silk Route had acquired stake in Ortel Communications, Orissa’s leading multi-system operator (MSO) from another PE firm, Actis.
A new entrant in PE space, Reliance Equity Advisors Ltd (REAL), arm of Anil Dhirubhai Ambani Group (ADGA), has shown interests in the secondary deals. Ramesh Venkat, CEO, REAL, said, “Every PE players are re-evaluating their strategies. Some of them wanted to exit a portfolio; some wanted to exit from the entire stake, while some wanted to exit from specific sectors. We are waiting to clinch such deals in the recent future.”
Vikram Uttam Singh, executive director and head PE Group, KPMG India, is of the view that PE players may exercise their drag-along right as per the agreement with promoters if the crisis continues. He says, “PE players can use their drag-along rights if the IPO is not floated at the proposed time or promoter is unable to buyback his shares.
As per the drag-along right, a PE player, who hold even a minority share in the company can ask the promoter to sell his majority stake along with the PE players’ stake to another company/ investor or PE firm.”
Arun Natarajan of Venture Intelligence says, “The funds which are closer to ending the life term can be sold out to other PE firms to get liquidate much faster. Secondary deals have the advantage of quick transaction as one investor is just replaced by another. Also an investor with deeper pocket on board will make this smoothly for the promoters.
Source: Financial Express