The number of investment exits, or selloffs, by private equity (PE) firms has more than halved to 21 transactions in the year ended March 31, 2009, against the previous year, according data compiled by Venture Intelligence, a firm that tracks PE and venture capital investments in India.
In terms of value, PE firms encashed $976 million through mergers and acquisitions (M&A) in 2008-09 as against $1.63 billion, for 50 deals, in the previous fiscal. PE firms, which invest in a company looking for capital appreciation, exit through various routes, including a trade sale to a strategic acquirer, public listing, recapitalisation and secondary sale to other PE investors. Trade sale is the most common exit route for PE firms.
PE exits have become increasingly difficult due to the lack of buyers, besides a sharp drop in valuations, dissuading financial investors from selling at a loss. However, the decline in the number of exits also shows that PE firms, which typically tend to stay invested for three to seven years in a company, have not resorted to panic selling, like foreign institutional investors (FIIs), after the stock markets crashed in 2008.
Venture Intelligence CEO Arun Natarajan said: “If private equity firms are not buying, they aren’t panic-selling either. Now that PE firms are taking a disciplined approach to deploy capital, the number of deals in the sector will automatically come down.”
In addition to the 21 exits, during the fiscal, through M&A route, the industry also recorded six PE-backed initial public offerings (IPO), wherein firms raised nearly $300 million. In 2007-08, the fiscal before, there were 16 PE-backed IPOs that raised $1.26 billion in total. Given the state of the markets, public issues have taken a beating over the last one year, bringing down exit opportunities.
According to industry estimates, currently, there are more than 366 PE firms operating in India. The industry witnessed significant growth in the last few years, with investments going up from $2 billion in 2005 to about $17 billion in 2008. PE firms, however, have turned cautious over the last one year and the estimated value of PE transactions have more than halved to $6.8 billion spread over 312 deals.
Source: Economic Times