While a volatile and sluggish stock market has had its casualties in the form of private equity-backed IPOs taking a hit, it hasn’t proved to be a dampener for open market exits by PE funds.
As per VCCEdge data, PE investors liquidated stakes worth $451 million across 13 block/bulk deals in Q3 of the calendar 2011, clocking a staggering 518% jump in open market exits over the $73 million figure in seven deals in the last quarter.
Open market exits in Q3 2011 also mark a 78% increase compared to the corresponding quarter last year, which inked 17 deals worth $253 million. This exemplifies that the prevailing capital market sentiment has not deterred PE investors from realising investments in listed companies in the secondary market. Interestingly, however, IPO exits declined to half with just three IPOs against six during Q3 2010.
Kunal Shrivastava, research director, VCCEdge points out that some of the funds might have exited possibly for lower returns. ?The investment horizons nearing for some of the 2007 investments might be a prime reason for these exits and the added pressure of showing returns to Limited Partners (LPs) under the overview section for exits would have played a certain role in these exits,? said Shrivastava.
Experts opine that secondary market still hold traction for buyers. Mayank Rastogi, partner, Private Equity and Transaction Advisory Services at Ernst & Young said, ?The secondary market still has buyers. Given the volatile market conditions, valuations are comparatively attractive for buyers.”
Rastogi affirmed that funds are taking a conscious call while going for an exit in the prevailing market conditions. ?If funds are meeting their threshold returns, they are going for the exit. It also is a combination of a fund’s life cycle and if they can remain invested for a longer period or not,? he said.
The notable open market exits in the quarter were: $171.53-million Warburg Pincus India exiting Kotak Mahindra Bank, $170-million ChrysCapital Investment Advisors exiting Idea Cellular, $34.9-million Warburg Pincus India exiting DB Corp, the $27.18-India Infrastructure Fund IDFC exiting Gujarat Pipavav Port, $16.1-million Henderson Asia Pacific Equity Partners I LP exiting HT Media and $15.58-million India Advantage Fund Series I exiting VA Tech Wabag.
Sanjiv Kaul, MD, ChrysCapital confirms that even if financial investors are cautious about exiting in a volatile market, exits are a permutation of return on investment and internal rate of return. If the fund has reached its threshold return, it will cash out of the investment, notwithstanding the market conditions. ChrysCapital in July exited from Idea Cellular at $170 million. Kaul added that even as the next two quarters would offer a rough ride for capital market, finding buyers for good stocks won’t be a problem.