Exits in private equity to gain momentum in 2013

Written by Shruti Ambavat | Mumbai | Updated: Dec 30 2012, 06:55am hrs
Industrial, consumer & infra-related services sectors ripe for exits

The year 2013 is expected to see several private equity (PE) firms exiting their mature investments, through options ranging from public offerings in stock markets, secondary deals with other PE firms, to strategic sales.

PE investments that have matured over five years will be eager to exit in the new year. Next year will be busy for many PE firms in terms of exits because the investments made in 2007-08 were huge, says Sanjeev Krishnan, executive director at PricewaterhouseCoopers India. PE firms would be more optimistic on secondary deals (PE-to-PE), as we have seen in the past.

Agrees Mayank Rastogi, partner, private equity and transaction advisory services at Ernst & Young. The current environment, characterised by slowdown in growth, exit pressure and funds nearing their terms should provide attractive investment opportunities emerging in the secondary deal market, he says, adding, This year did see a 50% growth in the PE-to-PE deal space and we should see this market evolving further in 2013, he adds. For instance, PE firms General Atlantic and Oak Hill Capital Partners exited investment in BPO firm Genpact at an exit value of $1 billion to Bain Capital.

PE firms exited across 137 deals for a value of $4.3 billion in 2012 with open market sale topping the favoured route for exit, followed by M&A and secondary sales, based on data provided by M&A and PE deal tracking firm VCCedge.

There would be action in strategic buyouts too, with many inbound deals expected. A number of US and Japanese firms are also looking to enter India through strategic buyouts, says Rastogi. Many Japanese corporate firms are strong contenders to participate in manufacturing, IT and are interested in these sectors in India along with local players, says Archana Hingorani, chief executive officer and executive director, IL&FS Investment Managers Ltd.

Japanese firm Nippon Life Insurance picked up substantial stake in Reliance Capital Asset Management in June this year. In September, US-based Invesco bought 49% stake in Religare Asset Management.

However, not all agree. I do not see many strategic buyouts happening in India as there is a conflict between the promoter and private equity firm over stake sale, says an investment banker, on the condition of anonymity.

Strategic sales at this point looks difficult because 2013 is a pre-election year and corporates would like to see a stable political scenario before entering deals. Also, secondary deals will be very limited because PE-to-PE expectations differ and the returns on exits may vary, says Mahendra Swarup, president at PE/VC industry representative body IVCA. Exits via public offers in the stock market would be few, given the volatility in the stock markets.

However, no one has ruled out a volatile ride in the year ahead. The challenges for exits could be the volatile equity markets. If the market is looking up only for a short window, exits will not come by, it has to show stability over a longer period, says Mittal of Canaan. Healthcare and consumer-related services remain the top pick for investments in 2013, whereas infrastructure still seems like a far-off investment haven.