Strategic exits seem to be the mantra going forward in 2012 for PE and VC funds, if the trend in 2011 is anything to go by. Strategic exits made for a substantial chunk of overall exits during that year. Consider this: Strategic exits worth $528.72 million happened in 2011, notching a 50% increase over strategic exits in 2010 ($353.66 million). What’s interesting is that the rise in value of strategic exits comes in spite of 2011 not faring well on the overall exit scenario in the country, and overall exits falling in value terms over 2010. While 2010 was considered a record year for exits, which amounted to $4.57 billion, 2011 saw exits worth just $2.87 billion.

With capital markets losing sheen, the trend is expected to continue in 2012 as well. No wonder then that January ’12 has already witnessed two marquee strategic exits. India Value Fund exited DM Healthcare for $100 million by selling its stake to Olympus Capital Holdings Asia. India Value Fund had originally invested $50 million in DM Healthcare four years ago, according to VCCedge, which tracks PE/VC investments. Also in January, Mayfield Fund exited Fourcee Infrastructure Equipment for $104 million by selling its stake to General Atlantic making a 10x return. Mayfield Fund had put in $5 million in 2010, it increased its investment last March, contributing $11 million to the company alongside SIDBI Venture Capital. With Sensex tanking 25% in 2011, even the recent brief bull run may not bring cheer to general partners (GPs) looking for open market exits or IPO exits.

Experts believe the current public market sentiment can be a temporary one as economic fundamentals continue to remain grim on the back of high inflation, stunted growth and lack of policy paralysis. So, while the course for strategic exits for 2012 looks set, industry insiders and analysts are predicting the trend to continue at least for the next 24 months.

?Exits will remain muted owing to volatile public markets,? confirms Vikram Utamsingh, executive director and head of private equity at KPMG. He says that general negative sentiment, coupled with an inflationary environment have impacted stock markets, and have impeded deal flow. ?A similar trend was observed in 2008-09, which created a pent-up demand for exits, resulting in the exit windfall of 2010 . A PE firm has to give money back to its limited partners (LPs) to demonstrate successful fund management. LPs expect at least 17-20% returns from India. No matter how much investment comes in, GPs will have to show meaningful exits, even if it means exiting at not the best of returns,? he says. Utamsingh affirms that in the prevailing market, strategic exits will be the preferred route and firms will exit even if they get a 15% internal rate of return. Ajay Relan, founder & managing partner, CX Partners says, ?Increasingly PE players will have to look at strategic and trade exits as exit options, and not much on exits through public markets.? Relan added.

Darius Pandole, partner, New Silk Route Advisors says, ? An increased number of strategic exits is a sign of a maturing PE market.?