Private equity funds increasingly exiting through open market
This has largely to do with the surge in stock prices this year, even as the primary market remained somnolent. The biggest open market exit was Carlyle Asia Partners quitting Housing
Development Finance Corporation Ltd (HDFC) for $841 million in October.
There has been a host of private equity (PE) fund exits this year and most of them have been through open market transactions instead of the initial public offering (IPO) route that such funds have historically favoured. This has largely to do with the surge in stock prices this year, even as the primary market remained somnolent.
There have been 43 open market exits generating $2.41 billion so far this year, as against just four IPO exits worth $49 million. In 2011, which too was not a good year for IPO exits, there were still 13 of them worth $115 million while open market exits added up to $861 million.
With the Bombay Stock Exchange's benchmark Sensex performing relatively well this year compared to 2011, PE funds looking to shed their investments in listed companies have made the most of the chance. The Sensex has risen 21 per cent between January 1 and November 7 this year. Open market exits in 2012 (till November 7) have already touched $2.41 billion compared with $861 million in the whole of 2011, a staggering 180 per cent jump.
The biggest open market exit was Carlyle Asia Partners quitting Housing Development Finance Corporation Ltd (HDFC) for $841 million in October. It was the second open market exit for Carlyle, which had offloaded HDFC for $270.38 million in February. "If market sentiment is down, decisions to exit are generally put on hold as was the case last year," says Vikram Uttam Singh, Head, Private Equity, KPMG.
"Funds that have been invested for three to four years and were looking for an exit are timing it now. This essentially has to do with the uptake in the market." The smart rally in stocks this year is good enough reason to exit investments in these times, he adds.
The PE industry will now need to plan for exits in unlisted firms by exploring strategic or secondary sales to other financial investors. With exits worth a mere $257 million through mergers and acquisitions and $83 million through buybacks in 2012, options are shrinking for the PE industry.
"As the holding period for a number of funds has been exceeded for investments, funds have to take to strategic sales and secondary sales. The time value of money comes into play," says Sanjeev Bhalla, Head, Equities and Alternatives, Bank of Bahrain and Kuwait.
A significant amount of PE capital was invested from 2006 to 2008. Many of these investors now necessarily need to exit. This will lead to a crowded exit pipeline for the next year or two.
These exits will also impact how India fares in the next round of funding. "It is critical that the PE industry in India gets better exits, both in terms of higher realisations and healthy internal rates of return," says Darius Pandole, Partner at PE firm New Silk Route Advisors.
There have been 43 open market exits generating $2.41 billion so far this year, as against just four IPO exits worth $49 million. In 2011, which too was not a good year for IPO exits, there were still 13 of them worth $115 million while open market exits added up to $861 million.
With the Bombay Stock Exchange's benchmark Sensex performing relatively well this year compared to 2011, PE funds looking to shed their investments in listed companies have made the most of the chance. The Sensex has risen 21 per cent between January 1 and November 7 this year. Open market exits in 2012 (till November 7) have already touched $2.41 billion compared with $861 million in the whole of 2011, a staggering 180 per cent jump.
"Funds that have been invested for three to four years and were looking for an exit are timing it now. This essentially has to do with the uptake in the market." The smart rally in stocks this year is good enough reason to exit investments in these times, he adds.
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The PE industry will now need to plan for exits in unlisted firms by exploring strategic or secondary sales to other financial investors. With exits worth a mere $257 million through mergers and acquisitions and $83 million through buybacks in 2012, options are shrinking for the PE industry.
"As the holding period for a number of funds has been exceeded for investments, funds have to take to strategic sales and secondary sales. The time value of money comes into play," says Sanjeev Bhalla, Head, Equities and Alternatives, Bank of Bahrain and Kuwait.
A significant amount of PE capital was invested from 2006 to 2008. Many of these investors now necessarily need to exit. This will lead to a crowded exit pipeline for the next year or two.
These exits will also impact how India fares in the next round of funding. "It is critical that the PE industry in India gets better exits, both in terms of higher realisations and healthy internal rates of return," says Darius Pandole, Partner at PE firm New Silk Route Advisors.
