 "PE companies revive exit hopes with changed IPO market")
Private equity (PE) investors in India who are waiting to exit their five-six years old investments, are back into the initial public offering (IPO) market to try their luck.
In the latest example, PE investors in Justdial Ltd - SAIF Partners, Sequoia Capital, SAP Ventures and Tiger Global - are likely to gain eight to 12 times' return on their investment through the proposed Rs 950-crore IPO. Justdial's IPO is the largest public offering by an Indian internet company, after the issues by MakeMyTrip and Info Edge (India) Ltd, which owns websites like Naukri.com.
Last year, Justdial had raised Rs 327 crore ($57 million) from existing investors Sequoia Capital and SAP Ventures in a pre-IPO round of funding. About 61 per cent stake of Justdial is held by PE investors.
"With market sentiment improving, the next 12 months are surely looking a lot better than the previous 12 for IPOs. While consumer driver companies will have maximum demand, there will be demand for other high quality companies as investors are looking for sustainable business models with good governance," said Abhay Pandey, managing director (MD), Sequoia Capital India.
With a valuation Rs 3,800 crore at the upper band, Saif Partners, which invested about $16 million in various stages, holds a 19.72 per cent stake in Justdial. Saif Partners' stake is valued at Rs 750 crore, while Tiger Global's 19.9 per cent stake is valued at Rs 756 crore. Tiger Global had invested $17 million in 2007 in Justdial.
However, the overall size of IPOs that were floated by PE-backed companies has fallen by about 70 per cent in the last three years. The year 2010 witnessed 28 PE-backed IPOs worth $2.6 billion against 20 IPOs worth $1.3 billion in 2011 and five offers worth $778 million in 2012. Till date in 2013, about five IPOs by PE-backed companies have been floated raising about $126 million, according to VCCEdge data.
In 2013, the consumer discretionary sector has witnessed three IPOs worth $7.74 million, while one issue in the industrial space raised $118 million. Last year saw only one significant PE-backed IPO, floated by Bharti Infratel worth $757 million.
"Sectors that are less dependent on government spending and approvals and also those which are too capital-intensive are likely to be better received in the market. Consumer, technology and health care will have a better chance of launching IPOs," said Pramod Kumar, MD, Barclays Capital India.
"FY13 and the early part of FY14 would continue to see PE firms exiting their investments of 2006-08. In most cases, whatever they cannot exit by 2014 would be investments where an exit is unlikely without incurring significant losses and might in some cases require significant re-engineering of the financial and operating conditions," said Sanjeev Krishan, executive director at PricewaterhouseCoopers.
Industry experts believe a number of secondary transaction, where one PE investor sells to another one, will be higher in 2013. Recently, Warburg Pincus had sold its controlling stake in Alliance Tires to KKR.
"The secondary markets have been quite strong so far and that is encouraging prospective issuers to get prepared to look for the right window to access the market," said Barclays' Kumar.
In the latest example, PE investors in Justdial Ltd - SAIF Partners, Sequoia Capital, SAP Ventures and Tiger Global - are likely to gain eight to 12 times' return on their investment through the proposed Rs 950-crore IPO. Justdial's IPO is the largest public offering by an Indian internet company, after the issues by MakeMyTrip and Info Edge (India) Ltd, which owns websites like Naukri.com.
Last year, Justdial had raised Rs 327 crore ($57 million) from existing investors Sequoia Capital and SAP Ventures in a pre-IPO round of funding. About 61 per cent stake of Justdial is held by PE investors.
"With market sentiment improving, the next 12 months are surely looking a lot better than the previous 12 for IPOs. While consumer driver companies will have maximum demand, there will be demand for other high quality companies as investors are looking for sustainable business models with good governance," said Abhay Pandey, managing director (MD), Sequoia Capital India.
With a valuation Rs 3,800 crore at the upper band, Saif Partners, which invested about $16 million in various stages, holds a 19.72 per cent stake in Justdial. Saif Partners' stake is valued at Rs 750 crore, while Tiger Global's 19.9 per cent stake is valued at Rs 756 crore. Tiger Global had invested $17 million in 2007 in Justdial.
However, the overall size of IPOs that were floated by PE-backed companies has fallen by about 70 per cent in the last three years. The year 2010 witnessed 28 PE-backed IPOs worth $2.6 billion against 20 IPOs worth $1.3 billion in 2011 and five offers worth $778 million in 2012. Till date in 2013, about five IPOs by PE-backed companies have been floated raising about $126 million, according to VCCEdge data.
In 2013, the consumer discretionary sector has witnessed three IPOs worth $7.74 million, while one issue in the industrial space raised $118 million. Last year saw only one significant PE-backed IPO, floated by Bharti Infratel worth $757 million.
"Sectors that are less dependent on government spending and approvals and also those which are too capital-intensive are likely to be better received in the market. Consumer, technology and health care will have a better chance of launching IPOs," said Pramod Kumar, MD, Barclays Capital India.
"FY13 and the early part of FY14 would continue to see PE firms exiting their investments of 2006-08. In most cases, whatever they cannot exit by 2014 would be investments where an exit is unlikely without incurring significant losses and might in some cases require significant re-engineering of the financial and operating conditions," said Sanjeev Krishan, executive director at PricewaterhouseCoopers.
Industry experts believe a number of secondary transaction, where one PE investor sells to another one, will be higher in 2013. Recently, Warburg Pincus had sold its controlling stake in Alliance Tires to KKR.
"The secondary markets have been quite strong so far and that is encouraging prospective issuers to get prepared to look for the right window to access the market," said Barclays' Kumar.