PE exits in Q3 up 12% on sharp rise in strategic sales across sectors

A surge in the number of strategic sales across sectors such as telecom, healthcare and information technology has led to an increase in the number of exits for private equity (PE) funds in the quarter ended 30 September.

While total exit volume increased by 12%, exit value grew by close to 30% to $3.1 billion (66 exits) in the September quarter from $2.4 billion (59 exits) a year earlier, according to a report by consulting firm Bain and Co.

Public market sales and strategic sales were the preferred exit mode for private equity firms.

Some of the key exits were through strategic stake sales in Bharti Telecom Ltd, Gland Pharma Ltd, Minacs and Citrus Payment Solutions, the report said.

Exits are a healthy sign in the market. If you are showing the ability of returning cash to LPs (limited partners) from India, that is a very positive sign. That gives confidence to people who are investing in India that you can see private equity returns in India,” said Arpan Sheth, partner at Bain and Co. and co-author of the report.

For the nine months ended 30 September, exit values have grown by 30%.

Manufacturing, healthcare and financial services emerged as sectors that witnessed the highest exit activity.

Besides, the top 10 exits accounted for 60% of the total value.

Investor sentiment towards India remains positive and it is expected to continue being a priority market, the report said.

“India is very attractive to LPs now as macroeconomic conditions improve in the wake of the new government. Also, the relative attractiveness of other markets such as China and Brazil slows down,” said Madhur Singhal, partner, Bain and Co. and co-author of the report.

However, private equity and venture capital investment activity in India decreased in the past quarter, with deal volume falling by 24% to 287 transactions. Deal value dropped by 45% to $8.2 billion from a year earlier.

Non-consumer technology sectors such as financial services, information technology and related services and manufacturing have seen major deal inflow with some large deals.

The third quarter has seen a spurt in deals in financial services, including the Canada Pension Plan Investment Board putting additional funds in Kotak Mahindra Bank Ltd, AION Capital Partners investing in GE Capital Services and CDC Group Plc picking up a stake in India Infoline Finance.

Investments in the space in the three months to September rose to $1.4 billion from $600 million a year ago. Consumer technology, despite a slowdown ($1 billion in September quarter this year against $2.6 billion in Q3 last year), still remains the second largest sector by value. Average deal size in the September quarter decreased to $15.6 million from $21.6 million, driven primarily by fewer large deals.