Even before the year has ended, private equity exits via open market sales in 2014 have hit a seven-year high, as PE investors continue to make the most of robust equity markets to offload stake in their listed investments.
The year so far has seen open market exits valued at $2.68 billion via 105 deals, with the past three months alone witnessing open market exits worth nearly $1 billion. The aggregate PE exit value through open market route has now overtaken the figure of $2.51 billion clocked in the year 2012.
Sanjeev Krishan, leader, private equity, at PwC India, says public markets have not looked back from the beginning of the year, and together with heightened strategic investor interest, they have provided composite exit opportunities to PE funds.
With equity markets rallying nearly 35% since the start of the year — Sensex touched an all-time high of 28,693.99 on November 28 —PE investors like Bain Capital, Goldman Sachs and Providence Equity Partners have been involved in large exit deals of over $200 million each. Bain Capital offloaded Hero Motocorp shares worth $650 million in two tranches (June and November) this year to bring down its stake from 8.6%, as at the end of last year to 1.5% now, garnering returns twice of its orginal investment made three and half years ago. Providence Equity Partners, which sold 2.4% stake in Idea Cellular for $234 million in September, also would have made returns over thrice of its eight-year-old investment.
The PE exits through open market sales now constitute over three-fourths to the total PE exit value of $3.57 billion in 2014 till date, while strategic sales ($0.47 billion) stand as the next best preferred route for exits.
However, not all the exits have yielded good returns for the investors. Last week, Blackstone Capital Partners partly sold 4.5% stake in Gokaldas Exports at one-fourth of its acquisition cost, after having sold 5.6% stake in June 2014 with a 66% loss. Similarly, Standard Chartered sold nearly 10.65 million shares in Man Infraconstruction for R23.56 apiece, as compared to its average pre-IPO acquisition price of R210 apiece five years ago.
Loooking forward, PE investors are optimistic about the likely improvement in India’s economic climate, which, in turn, is likely to lead to higher exits.
“As business sentiment improves, the stock market has also seen sharp gain. This would be beneficial in creating conditions for exits in the coming years. PE investors are of the view that the immediate and near future is likely to see an increase in exit transactions returning average holding periods to three-five years instead of the current five-seven years,” wrote Kalpana Jain, senior director at Deloitte Touche Tohmatsu India, in a recent report.