With exits becoming difficult, private equity firms have increasingly begun to invest in listed companies for better returns. The trend becomes evident if one looks at private investments in public equity (PIPE), which in the first half of calendar year 2015 crossed the $1-billion mark. This is higher than the total PIPE investments in 2013 and 2014, data from Venture Intelligence shows. For instance, if in CY14 there were 43 PIPE deals of $887 million, in the current calendar, so far, it has already touched $1.2 billion across 15 deals. (see table).
In May, for instance, Apax Partners bought a 20.4% stake in Shriram City Union Finance for $383 million. Similarly, Temasek invested $294 million for 0.83% in Sun Pharma. Since 2007, banking and financial services have mostly constituted bulk of the PIPE deals. For example, so far in CY15, banking and financial services comprise over 45% of the total PIPE investments. However, in 2012, IT and ITeS accounted for 45.5% of the PIPE investments.
“Private equity firms have realised that exits are difficult,” says Raja Lahiri, partner at EY India. In fact, between 2000-2013, PE firms have invested $94 billion, but have exited 19.5%, or $18.3 billion, of this investment at 1.7 times or a value of $30.3 billion, according to the Mckinsey data.
If PE exits so far in CY15 has outpaced total PE exits in CY14 — the total value of PE exits in 2014 was $3.7 billion against $4.7 billion so far in CY15 — it is more because of the overhang factor.
That PE exits have been difficult and returns not really attractive is quite evident if one looks at the numbers. PE firms had invested $14.65 billion in India in 2007 — the highest quantum of PE investment made into the country in a single year ever.
Yet, they have exited less than 26% of the $14.65 billion invested in the year, according to Venture Intelligence data.
In other words, PE investments of $11 billion is yet to be realised and returned to investors.
Further, in CY2007, the average exchange rate of the Indian rupee (INR) against the US dollar (USD) stood at Rs 41.33 versus the average of R62.59 in 2015 — an average depreciation of 34% of the rupee against the dollar. This has led to a value erosion on currency basis of $3.67 billion for PE investments in just one single year in 2007.
However, with stock markets indicating some signs of revival, PEs have managed to sell stock worth $1.4 billion across 56 deals in the six months to June 2015 compared with $2.7 billion across 109 deals in 2014.