PE exits may maintain healthy trend in 2008

PE exits may maintain healthy trend in 2008

Exits in the Indian private equity (PE) market in 2008 are expected to maintain the momentum they have acquired over the past two years. The recent volatility in the stock markets may put initial public offerings (IPOs) by PE-backed companies on hold in the short term, but this is not expected to impact net gains from overall exits during the year. In calendar year 2007, PE investors completed exits worth an estimated $1.5 billion (Rs5,910 crore) via strategic stake sales or secondary transactions. In addition, there were 14 PE-backed IPOs during the year.

The numbers on exits were compiled by Mint from data provided by a Mumbai-based PE firm that did not want to be named, industry reports and independent data providers Thomson Financial and Four-S Services Pvt. Ltd. Last year, there were eight disclosed exits with ticket sizes more than $100 million against only one in 2006. Leading?PE?firms?attribute?last year’s strong exit run to soaring valuations and the ripple effects of the US sub-prime crisis.

The majority of investors say that the fundamentals of the Indian economy are steadfast and companies will continue to expand. Anil Ahuja, managing director and co-head for Asia at London-based 3i Group Plc. said: “This year will see exits of investments made in 2005, which could be a bigger number than last year." Sequoia Capital India managing director K.P. Balaraj added: “2008 will see more exits because PE and trade buyer capital is focused on India." Seven of Sequoia Capital’s portfolio companies will be considering IPOs this year.

Among the 2007 exits completed ahead of an expected correction were UK-based Actis Capital Llp.’s sale of its 28% stake in Punjab Tractors Ltd to Mahindra and Mahindra Ltd and the public listing of Jyoti Laboratories Ltd. Actis, ICICI Venture Funds Management Co. and Sequoia Capital India saw the highest exit activity last year. ICICI Venture, which did not comment for this story, was at the top of the heap with nine disclosed exits. The largest PE-backed IPO came from Idea Cellular Ltd. ChrysCapital Management Co., Citigroup Venture Capital International Asia Ltd, TA Associates Inc. and Providence Equity Partners Inc. collectively had a minority stake in the company, which raised $555 million in total.

Other notable IPOs included the business process outsourcing giant Genpact, which raised approximately $600 million on the New York Stock Exchange. General Atlantic and Oakhill Capital together held 60% in the firm.

No 2007 deal has come close to Warburg Pincus Llc.’s $840 million sale of its residual 5.6% stake in Bharti Televentures Ltd (Now Bharti Airtel Ltd) to Vodafone Group Plc. and Citigroup Venture Capital International’s $593 million sale of its 41% stake in iFlex Solutions Ltd to Oracle Corp., both in 2005. The two deals helped make 2005 a peak year for exits, which then totalled $3.3 billion. It is unlikely that 2008 will break that record.

Investors will be watching for the correction they have been expecting this year despite Friday’s bounce back on the stock markets. “The myth about decoupling (of India and the global economy) is completely bunk," said Akhil Gupta, chairman and managing director of Blackstone Advisors India Pvt. Ltd. “Nothing is more globalized than financial markets."

J.M. Trivedi, managing director of Mumbai-based Actis Advisers Pvt. Ltd, added that the real test for exits will be in 2010 when PE deals made at the peak of valuations in late 2007 will become mature.