Private equity firms were not as lucky as venture capital firms in terms of reaping gains through public market exits during the current calendar year. Unlike the VC firms who netted $4.06 billion till November, which was double their last year’s earnings, the gains for PE firms was flat at $13.3 billion, according to data shared by Venture Intelligence. This was also thanks to Blackstone’s $808 million exit from Mphasis, else their earnings would have been lower compared to the same period last year.
However, over the last five years, the number of exit deals by PEs in the public markets have risen consistently, encouraged by a robust appetite among public market investors. Total number of exit deals by PEs, either through IPOs or open market transactions or reverse mergers, were 161 last year, compared to 87 deals in 2022 that fetched around $8.2 billion and 106 deals in 2021. This year PEs executed 165 exit deals.
In June, Blackstone sold a 15% stake in the IT services firm Mphasis, cutting its stake to 40% from 55% as of March. Blackstone remains the largest shareholder in Mphasis. Besides this deal, investors such as Peak XV, Norwest and TPG Capital sold around 11% stake in non-banking financial company Five Star Business through block deals worth $536 million in September, while Warburg Pincus sold its entire 9.17% stake in Kalyan Jewellers India for $451 million.
“The primary driver (of exit deals) has been a meaningful difference in valuation between public and private mutliples, where the difference can range between 20-50%” said Avnish Mehra, Vice Chairman and Head- Private Equity, Everstone Capital. Better valuations by public market investors this year have also driven at least 13 startups to list on the bourses.
Much like last year, nearly 90% of the exits for private equity firms came from open market transactions this year via bulk or block deals, the data showed, while the proportion of sale through IPO climbed up marginally to 16% from 11% last year.
Mehra added that public markets also allow scaled exit in case of minority stakes held by PE firms whereas private markets may require more control deals. “Also, public markets, in the current euphoria, have not been very differentiating about quality of businesses with everything selling,” Mehra said.
Not just PEs, VCs have also cashed in on the booming IPO market this year and overall robust appetite. For VCs, a good year in public market exits came after nearly two years of a funding crunch that offered limited opportunities for returns.
The $4 billion raked in this year by them is also about 180% higher than the $1.5 billion earned in 2022, and even higher than the exits recorded during the funding boom of 2021, when VC firms had managed to earn $3.3 billion.