The year 2015 is expected to be a significant one for the private equity (PE) industry, with funds expected to exit $30-billion investments made in 2007-08. Most PE firms exit investments at a premium, after holding in portfolio companies for 5-8 years.
Not only this, the country’s improving business outlook has fueled growth in consumer focused sectors. With the Sensex returning around 48% (in rupee terms) over the last two years, PE funds may look at exit routes like IPOs — not the most preferred route in the last couple of years as equity markets were choppy.
A bearish market in the years leading to 2013 had triggered inertia in the IPO market and led PE players to explore alternative exit options.
According to a Deloitte report, “ Of the 160 exit transactions that took place in 2013, strategic sale, secondary sale, IPOs and buybacks each accounted for approximately 25% of PE Exits. In value terms, 2013 returned approximately $3.6 billion to investors.”
There were around 100 PE exits in the last calendar year, which returned over $5 billion to investors. Bolstered by the new government in Delhi last year, over 55% of around 100 PE exits last year were via the IPO route, returning over $5 billion to investors.
Deloitte expects the market for good investment opportunities to gain steam. Global and domestic investors are keen to add companies that offer value-based growth, rather than only revenue-based growth, to their portfolio. PE firms invested more in new ventures that required early stage capital or growth capital to scale-up their business versus late-stage investments or investments in public equity. For example, the high growth potential e-commerce space within the larger IT segment has been a popular pick for PE firms and has garnered approximately $3 billion in 2014. According to the Deloitte report, “recent transactions are indicative of funds being provided to companies for scaling up through inorganic route especially in the e-commerce space.”
The past two years have typically witnessed 65-75% PE deals in south and west India in cities like Bengaluru, Chennai, and Mumabi. There has been a surge in interest from entrepreneurs and promoters in tier II and tier III cities. Over the next few years, PE investors expect more deals to unfold in east India.
According to Grant Thornton report, sectors like real estate, infrastructure, retail and BFSI have continued to show an upward trend as key sectors for PE investment. PE investors are keen to evaluate opportunities in innovative segments that target new product or service offerings.
By Neha Bothra
