The year 2011 is likely to witness maximum number of private equity/venture capital exits in the history of Indian PE industry. The typical cycle of investment-exit is expected to get completed in 2010-11 for many PE investors here. December 2010 witnessed the largest ever exit in PE, wherein Actis and Sequoia together made a $500-million profit through the sale of portfolio firm Paras Pharma.
“This year will witness the continuation of exit process, which began in 2010. The maximum number of PE/VC investments took place in 2006-2007 when the balance sheets as well as the profitability of the portfolio firms were pretty good. The downturn made the year 2009 tough for exits and 2010 saw change in performance and the euphoria was back. As the reflection, more exits are expected in 2011 and 2012,” said Nitin Deshmukh, CEO, private equity, Kotak Investment Advisors.
According to VCCedge, exits worth $5 billion took place in 2010 through 164 deals against 103 exit deals worth mere $2.1 billion in 2009. Buyback was the preferred route in 2010 as deals worth $1.7 billion took place. The next preferred routes were open market ($1.5 billion) and M&A ($1.2 billion).
“We are witnessing increased interest from foreign companies looking at buyouts in India. As they are aggressively looking to expand growth markets, they are willing to pay a premium for the right assets; Indian promoters see them bringing in vast experience and technology apart from capital. A number of private equity players who have taken up controlling equity positions in the past will continue to use this route to exit their holdings at an attractive multiple,” said Rajendra Nalam, partner, Mergers & Acquisitions practice, BMR Advisors.
| PE/VC EXITS | ||||
| Year | 2009 | 2010 | ||
| Exit volume | Exit value ($ mn) | Exit volume | Exit value ($ mn) | |
| Buyback | 6 | 500 | 15 | 1695.32 |
| IPO | 2 | 31.64 | 15 | 502.22 |
| M&A | 18 | 157.97 | 40 | 1238.13 |
| Open market | 69 | 1390.1 | 76 | 1448.54 |
| Secondary sales | 8 | 78.17 | 18 | 160.85 |
Other major exits that took place in 2010 include DLF Assets Ltd, which bought back stake from Symphony Capital in deal worth $695 million; Aamby Valley Ltd's $323-million buyback from Siva Venture; Sequoia and other firms' $354-million exit from SKS Microfinance through IPO; Saif Partners' $199-million stake sell-out in Intelligroup through M&A and WL Ross' $160-million deal in SpiceJet through M&A.
“Surely, there will be more exits in 2011 as compared to previous years, since the portfolio companies are getting matured. Investments made in 2003, 04 and 05 are matured now and will be able to provide good returns for investors.
Similarly, more investments will also be seen in 2011 compared to the last year,” said Pankaj Dhandharia, partner, Transaction Advisory Services, E&Y.
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“People prefer M&A as a best option for exit as it is difficult to rely on the volatile capital market,” said Deshmukh.
The shares of SKS Microfinance, the only listed microfinance firm, plunged to all-time low last month due to uncertainty over new MFI regulations. PE exits through M&A saw a growth of about 700 per cent last year as compared to 2009.
According to Shujaat Khan, Managing Director, Blue River Capital Advisors, investments also will be higher through secondary transactions.
“The exits by a PE firm through secondary sale in growth stage will make an investment by another firm. In that way, a good number of investments are also supposed to take place in 2011,” he said. The secondary sale exits also doubled to $161 million in 2010 from $78 million in 2009.