Profitable exits in sight for private equity firms

Jul 13 2014, 00:19 IST
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Most exits so far have taken place via the secondary deals and public market sale route. Most exits so far have taken place via the secondary deals and public market sale route.
SummaryWith stock markets scaling new peaks and foreign investors more bullish on India than ever before...

With stock markets scaling new peaks and foreign investors more bullish on India than ever before, there’s a good chance private equity (PE) firms will soon be able to sell some of the investments they have been holding on to for years at good valuations.

The exit route for PE investors has been rather tough, with investors taking home just over $31 billion in the past six years; in the last decade they invested over $90 billion, a report from Bain & Co notes.

Most exits so far have taken place via the secondary deals and public market sale route. Lack of strategic investors and IPO exits had forced investors to hold on to their investments. In 2013, there were only three IPO exits, as per VCC Edge data.

But with strong investor sentiment, a raft of IPOs is expected to hit the markets over the next few months.

Among the investments that are likely to be offloaded soon are those in Coffee Day Resorts — holding company of Cafe Coffee Day backed by PEs NSR Partners, KKR and Standard Chartered PE — and the solar energy arm of Hindustan Power Projects in which Blackstone has a stake. Ballarpur International Graphic Paper Holdings — the holding company of Ballarpur Paper Holdings in which JP Morgan and GIC Special Investments have stakes — might also list overseas, the promoters indicated to the stock exchange.

Arpan Sheth, PE consulting practice head at Bain & Company, believes that PE exits will be accelerated by two key drivers — greater liquidity in the market due to higher retail and institutional investor interest, and attractive market multiples available in public markets.

Udai Dhawan, MD & India head, Standard Chartered Private Equity, believes that current market environment offers good opportunities for liquidity and they have a high quality portfolio wherein some companies are ripe for listing.

“Multiples have, indeed, expanded, partly driven by sentiment, particularly in sectors like infrastructure and industrial that were struggling and had little visible recovery earlier. While actual performance will take time to pick up, what has fundamentally changed is the medium and long term industrial outlook in the hope that the new government will do all the right things to revive the economy,” said Dhawan.

For instance, Myntra’s valuation has seen a sharp appreciation from $250 million in November 2013 (when Premji Invest and other PE players invested $50 million) to $330 million in May

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