India: PE firms opt for exits via secondary sales over IPO route

Photo: Hindustan Times

The challenges that the initial public offering (IPO) market faces are prompting private equity (PE) firms to opt for exits either through secondary stake sales to another PE fund or through a strategic investor, said industry experts.

“If the market slowdown continues for another six to nine months and does not normalize by March, these PE investors might start considering other exit options more actively,” said Subhrajit Roy, executive director and head, equity capital market origination, Kotak Investment Banking.

A lot of PE investors who were planning their exits via the IPO route over the next 12 to 18 months are still holding on to their plans as they expect the markets to normalize in the near-term, said Roy.

“That is why it is critical that the IPOs, in which PE funds are looking to sell stakes, get a good response when they hit the market in the next one and a half months. If they do well, the IPO route will remain as relevant for exits as it was in the past,” he said.

So far this year, only eight companies have gone public to raise around 5,509 crore. In comparison, last year saw 24 IPOs worth 30,959 crore, according to data from primary market tracker Prime Database.

“There were hopes that it (the IPO market) will open up after the elections, but that did not happen because of the liquidity crunch in the market,” said Sanjeev Krishan, partner and leader, private equity and deals leader, PwC India.

“More than 20 PE funds were looking to monetize their investments through IPOs this year. So, if these IPOs do not come through, which is quite likely, then the PE firms will have to look at alternative exit mechanisms,” he said.

Exit through the IPO route has been the least preferred in 2019 by PE firms, with just four companies selling equity worth $69 million between January and June, according to data from EY India. That is 10 times lower than the IPO exits worth $760 million across 11 companies in the previous calendar year. The number for secondary sales, however, was significantly higher at $836 million across 17 deals and $1,455 million exits via strategic stake sale involving 32 deals, for the January-June period this year.

So far, IPO exits for PE funds are at their lowest since 2015, according to EY.

“When the markets are down, the valuations are cheaper and investors prefer to wait,” said Ajay Garg, managing director, Equirus Capital Pvt. Ltd.

“In the present market, investors are waiting rather than trying to push for their transaction. However, if the market situation doesn’t improve beyond a point, then they will have to try alternative routes for exiting their investments,” he said.

This article was first published on livemint.com.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.