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Exits by private equity and venture capital firms fell to a six-year low in the first 11 months of 2020 as the uncertainties from the pandemic damped deal activity, showed data from a report by Indian Private Equity & Venture Capital Association and EY.

Exits plunged 53% by value during January to November to $4.9 billion from $10.3 billion in 2019. In terms of volume, exits fell 13% to 129 deals from 148 last year.

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“Exits slowed down substantially as after the covid-19 lockdowns started in March 3rd week, the prevailing uncertainty increased business risk premiums. In light of significant uncertainty, investors that were ready to commit capital wanted to play safe and were ready to do deals at valuations that were significantly lower than what was prevailing pre-covid. Thus, sellers decided to defer their exit plans and not book losses by selling at the worst possible time," said Vivek Soni, partner and national leader- private equity services at EY.

Of the total exits, those through the open market were the highest
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Of the total exits, those through the open market were the highest

Of the total exits, those through the open market were the highest at $2.3 billion across 59 deals during January to November, though it fell 47% from the same period last year.

Exits through initial public offerings (IPOs) followed with $1.1 billion recorded across four share sales, a sharp rise from $247 million across seven IPOs in 2019. This year’s figure includes the $1 billion partial exit by Carlyle through the IPO of SBI Cards.

Exits through strategic stake sales stood at $1 billion (42 deals) during January to November 2020, a 39% drop from the year earlier. Exits through secondary sales or sales to other PE funds were at $167 million (15 deals), the lowest value in more than six years.

To be sure, while 2020 has been a tough year for exits, things appear to have started improving going into 2021.

“Things are looking up now, especially with vaccines coming to the market and expectations that the economy will recover faster," said Soni.

A revitalized IPO market is expected to contribute significantly to PE exits in the near term.

“Recently, we have seen PE-backed IPOs of Burger King India and Mrs Bectors Food Specialities, which have been very well received in the market. Mid-cap and small cap indices have recovered significantly and unless there is some significant bad news on the virus front, we expect the IPO market to remain favourable for the next 2-3 months. This should lead to more PE-backed IPOs in the next quarter," said Soni.

However, he added that exits through strategic M&As is expected to remain a challenge.

“There are very few strategic buyers in the Indian market as most large business groups continue to deal with bloated balance sheets and significant leverage. And post covid-19, in-bound interest from foreign strategics is also low as most of them are busy with their core markets," he said.

“Overall, we expected a strong rebound in exit activity in 2021, driven largely by PE-backed IPO’s and secondary sales."

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