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Business News/ Companies / PE fund exits in 2015 so far highest in five years
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PE fund exits in 2015 so far highest in five years

Fund managers returned $5.15 billion to investors in first six months after slowdown prevented exits earlier

A slowdown in the economy and weakness in the secondary markets had prevented PE funds from exiting investments successfully in the past few years. Photo: MintPremium
A slowdown in the economy and weakness in the secondary markets had prevented PE funds from exiting investments successfully in the past few years. Photo: Mint

Mumbai: Indian private equity (PE) fund managers have managed to return $5.15 billion to their investors in the first six months of this year, said a report by PwC MoneyTree India, citing data from Venture Intelligence.

This is the highest amount of exit secured by domestic funds in the last five years.

A slowdown in the economy and weakness in the secondary markets had prevented PE funds from exiting investments successfully in the past few years. As a result, returns secured by PE funds had fallen while the average length of investments rose.

According to a July report by McKinsey and Co., average gross returns to PE investors fell to a mere 7% after 2008. The average length of investments rose to 5.7 years in 2013 from 3.3 years in 2005. It is this performance that funds are now trying to correct by taking advantage of a pick-up in secondary markets and revival of investor sentiment around India.

“Exit activity is absolutely at its peak this year with funds exiting their stake through public market exits, secondaries and strategic sales. More importantly, India-focused fund managers are keen to exit their investments and showcase exits for their new fund-raising programme," said Sanjeev Krishan, partner and leader, PE and transaction services, PricewaterhouseCoopers Pvt. Ltd.

Exit activity so far this year has already overtaken the $4.2 billion in exits secured across 178 deals in 2014.

“There was a lot of pent-up demand for exits as the industry has not seen much activity in exits over last couple of years. Also, most of the funds, which are approaching the end of their fund life, will be looking to sell, as fund managers need to return capital to their investors," said Amit Jain, executive director at GTI Capital Group.

The increased activity in exits should continue over the next 12-18 months, Jain added.

Along with the exits through mergers and acquisitions (M&A) and secondary-market deals, public-market exits have also witnessed a spurt. Fund managers have pocketed $977 million by selling their shares in public-listed firms in April-June quarter alone. In addition, exits through initial public offerings (IPOs) are also on the rise. “The activity is being driven by the way capital markets are performing. (In the) last three years, the IPO market was virtually closed. Now we are seeing healthy activity on the IPO front," said Mukul Gulati, co-founder and managing partner, Zephyr Peacock India, a PE arm of New York-based Zephyr Management Lp.

The second quarter of this calendar year witnessed the most exits by PE funds, with investors managing exits of almost $3.63 billion across 50 deals, according to the data from the PwC MoneyTree India report.

The exit activity in the second quarter is more than twice that seen in the first quarter when exits worth $1.53 billion across 61 deals were reported.

“Consumer, financial services, IT sectors are the most active in terms of exit activity. Valuation expectations vary sector to sector. Consumer is a very hot sector right now, while valuation in sectors, such as manufacturing and infrastructure, are very reasonable," Gulati said, while adding that exits from investments in the infrastructure sector may pick up in 2016.

In terms of sectors, the IT sector was the most active and saw $1.93 billion worth of exits in the first half of the year, followed by banking and financial services, which saw $437 million in exits.

pooja.s1@livemint.com

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Published: 20 Aug 2015, 07:14 AM IST
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