Home / Market / Stock-market-news /  Volatile stock market, lacklustre share sales may boost PE activity

Mumbai: Volatility in stock markets and the lacklustre performance of recent initial public offerings (IPOs) are expected to heighten private equity (PE) activity this year as investors find it hard to exit through public share sales.

While PE investments touched a record $23.34 billion in 2017, deal volumes or number of transactions at 537 deals was far lower than the previous year’s 725, data from research firm Venture Intelligence shows.

According to a recent Grant Thornton report, the PE segment witnessed 102 transactions worth $3.2 billion in January-February this year, higher by 32% and 66%, respectively, as compared to January-February 2017.

“Till six months ago, the standard refrain was that IPO markets were a better option to raise growth capital or provide exits to investors, which made it difficult for PE funds to do transactions at valuations which would make them lucrative," managing director of a global private equity firm said. “But some of the deals we were unable to pursue a year ago are back again for consideration with revised valuation," he said on condition of anonymity.

Large transactions that have come back to PE fold after exploring IPO possibilities include TPG’s exit from Healthium MedTech Pvt. Ltd (formerly known as Sutures India) which was sold to Apax Partners for $350 million in April this year; and Blackstone’s potential exit from Intelenet, a BPO services company, which according to an Economic Times report is now talking to of PE and strategic suitors for a sale.

Since March, a number of IPOs have failed to garner the kind of overwhelming response seen in 2017.

While Bandhan Bank IPO was the only one to be oversubscribed by more than 14 times, others such as ICICI Securities had to cut the size of its IPO after seeing low subscription.

The IPO of Hindustan Aeronautics Ltd was issue subscribed 99% while TVS Capital backed Prabhat Dairy Ltd’s IPO witnessed only 76% offtake even after cutting its issue price and extending the sale.

A number of domestic and external factors have impacted valuations, says a senior partner of a well known domestic private equity fund, which is raising a new $300 million fund.

The long-term capital gains tax (LTCG) and rising treasury yields in US coupled with national elections due April next year has added to the cautious tone which is expected to continue for some time.

“Valuations are still high in India, though some moderation in the recent past has helped. At least they are not at the prohibitive levels we witnessed a few years ago, which made it very tough to do sensible deals," Leif Zeirz, global deal advisory leader at KPMG told Mint in a recent interview.

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