After covid blow, PE exits on way to hit new record in 2021
2 min read 19 Aug 2021, 12:54 AM ISTExits quadrupled to $23.4 bn in January-July, a few billion short of the record $27 bn in 2018
PremiumExits by private equity (PE) and venture capital (VC) firms made a strong rebound in 2021 after slowing to $6 billion last year due to the pandemic.
Exits quadrupled to $23.4 billion in the first seven months of 2021, a few billion short of the record $27 billion in 2018, showed data from IVCA (Indian PE and VC Association) and EY.
At $12.88 billion, strategic acquisitions lead the exit activity, followed by secondary stake sales at $5.25 billion, open market sales at $2.98 billion, IPO exits at $1.66 billion, while buybacks pulled $632 million worth of exit proceeds, the data showed.
The technology sector made up the biggest share of exits in 2021 so far at $11.82 billion, followed by financial services at $2.52 billion.
“Large corporates are trying to complement their brick-and-mortar businesses with digital and we are seeing them undertake a lot of strategic acquisitions of digital companies in the push to create an omnichannel presence," said Vivek Soni, partner and national leader, private equity services, EY.
Large corporate houses such as the Tata group are actively pursuing this strategy as seen with their recent acquisition of online grocer BigBasket. Oil-to-retail conglomerate Reliance Industries Ltd has also acquired several startups in the past few years to strengthen its digital business and several other corporates are expected to take this route.
The acquisition activity is also being driven by tech startups that are looking to scale up their business in the run-up to their plans to go public.
“Large tech companies, whether they are horizontal or vertical, they are also looking to consolidate other vertical players and bulk up their market share as they prepare to go public. There is a big differential between the value that public markets will ascribe to a market leader as compared to another smaller player in the same vertical and hence such companies are going down the inorganic route to scale up before they do an IPO," said Soni.
Pre-IPO rounds are also emerging as a major exit route for investors of these technology companies.
“We are also seeing that the tech companies, in the run-up to their IPOs, are looking to bring in marquee public market investors through pre-IPO rounds as a show of confidence in their business models. Many of these pre-IPO rounds have a significant secondary component allowing early stage investors to exit and be replaced by long-only public market investors. The Zomato IPO was a watershed moment for tech startups and many more of them will go pubic. So, there will more exits in pre-IPO and in the IPOs too," said Soni.
He said also that another exit method that may see some traction in future is the US SPAC (special purpose acquisition company) route post the listing of ReNew Power.
“It should open up another viable exit route for PE/VC funded companies," he said. ReNew Power is set to list on Nasdaq on 24 August.
