Exit strategy

With the current absenteeism of initial public offerings, private equity firms are having a tough time exiting their expensive and old portfolio firms, leaving several firms with no option but to exit through secondary deals. Secondary deals are whereby companies are traded between private equity groups rather than outwardly in the open market.

The private equity industry changed in India and globally post the world economic crises in 2008. With the fall of financial institutions like Lehman Brothers and Bear Stearns, the valuations of companies also began to trickle down. This changed the game for PE investors who had earlier funded companies at valuations over 20 times. The value of some of these companies has reduced considerably, and coupled with the falling rupee, the exit valuations have gone down further.

Some of the large firms that have invested in listed companies in the pre-economic crises period have seen their value diminishing on the stock market. For example, PE firm 3i India Infrastructure had invested R900 crore in Adani Power in 2007. The company went for an IPO in 2009 with a price band of R90-100 but its stock value has halved to close at R47.45 on the Bombay Stock Exchange on Friday. “Who will give us the right price now if we exit the company? The investment cost us R60

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