PE exits have dropped by 70% so far this year amid volatile market
Open market and strategic exits were the most preferred options, while IPOs were at a 5-year low
Private equity (PE) firms have been negotiating tough times in 2019 with exits dropping by about 70% so far this year compared to 2018, amid a volatile market.
In the nine months ended September, 114 PE exits worth $8,172 million were recorded, compared with 177 exits worth $27,048 million in the 12-month period of 2018, shows data from consulting firm EY.
Even if one excludes the $16 billion exit through the Flipkart-Walmart deal last year, the exit value was still 26% higher in 2018, compared to exits recorded during the January-September period this year.
“Multiple factors have contributed to a weak 2019 in terms of exits. Globally, oversupplied venture capital markets have created a disconnect between valuations and exit markets, and some of this is true in India as well. Also, public markets in India have seen a weak year so far," said Gopal Jain, managing partner of PE firm Gaja Capital.
In terms of the modes of exit, open market and strategic exits remained the most preferred options, while initial public offerings (IPOs) were at a five-year low.
“The slowing down of capital markets and lower level of business confidence appear to have had a knock-on effect on PE exits. The lack of certainty regarding initial public offerings following through to the finish line in the current market scenario and dampened sentiments seem to be contributing to a slowdown in M&A (mergers and acquisitions) opportunities as well. Therefore, a higher degree of business uncertainty is likely to be affecting PE exits in India," said Siddharth Shah, partner at law firm Khaitan and Co.
As of September, 31 PE exits worth $2,390 million were recorded through the open market route, compared to 56 such exits worth $1,692 million in 2018. There were, however, seven exits via IPOs worth $247 million, compared to 13 exits worth $875 million in the previous year.
“The first half of this year has been slow in terms of exits, mainly due to the volatility in the markets. This was so, as a lot of PE firms had lined up their exits through the public market route and, in most cases, those plans will now get pushed ahead as they wait out another 6-12 months for a pick up in public market activity," said Ausang Shukla, managing director and head of corporate finance, Ambit,a Mumbai-based investment bank.
“Investors may look to realign the exit strategy best suited for them, especially with the slowdown of a public market exit option. So, it is more of a cyclical than a structural issue, as some investors are pushing back exit plans for stronger market conditions and some are shifting gears from public to private markets for exits, and there is a lag that comes in when there is re-alignment in strategy, which has also affected the exits this year", he added.