It was clearly a party time for private equity firms and, dare we say, general partners. With a record number of exits, PE firms encashed a big chunk of their previous investments from Indian companies in 2010, arguably bringing to an end the first generation of investments in the country in the 2000-2005 period.
As many as 164 exits were recorded last year according to VCCEdge, the financial research platform of VCCircle. This is more than the volumes recorded in the past two years. The total value of money encashed by the investors at $5.04 billion is more than double that of the previous year and even higher than the value of exits between 2007-2009.
The most prominent trend last year was the emergence of buybacks as the single biggest source of exits for PE firms, accounting for a third of the total value of exits in 2010. Buybacks by promoters could have been prompted by PE firms’ intention to exit as the portfolio companies were close to hitting the investment horizon of their particular funds, that typically stretches up to 5-7 years for a single deal. There were several big buybacks in the real estate sector given the lack of liquidity in the sector.
In contrast, secondary deals with other PE investors was lower than the average in 2007-08. M&A-backed exits or sale to strategic investors that was the main route of selloff for PE firms, averaging over $1 billion each betwen 2005-07 only to shrink substantially in the two subsequent years, was back in action as deal activity picked up in the country.
IPO exits also hit an all time high bringing over half a billion dollars or twice the previous best in 2007 to the sellers as primary market was buzzing with new issues. Open market sales, another big liquidity tool for PE exits in the past few years and specially in 2009 accounting for over half of all exit value as well as volume, continued to be big as PE firms saw an opportunity to sell shares as stock market price of listed companies rose.
VCCircle brings some significant exit stories of 2010:-
Actis & Sequoia: Paras Pharmaceuticals sold to Reckitt Benckiser in M&A deal worth $726 million
The biggest liquidity event came at the fag end of the year when Sequoia Capital and Actis exited their four-year-old investment in Paras Pharmaceuticals, a maker of ointments and personal care products. The two PE firms are estimated to have generated gross returns to the tune of 3.5-4x. Although over a quarter of the total deal value went to the Paras’ promoters, Actis in particular is said to have made net return of over $300 million. The deal also marked the aggressiveness of multinationals to snap local companies at high valuations in a bid to build exposure in India.
Symphony Capital: DLF Assets stake buyback by DLF Ltd- $694.3 MN
This was coming, after DLF provided an exit to another financial investor hedge fund DE Shaw in 2009. The two investors had hoped to cash on in the future when DLF Assets, the property fund of DLF Ltd, came out with a proposed REIT listing in Singapore. However, turn of events in the financial markets pretty much killed that prospect and promoters or the parent company had to provide an exit option to the investors. Symphony had invested in early 2008 and backed it up by acquiring Lehman Bros’ investment as it declared bankruptcy later that year.
ChrysCapital: Infosys Technologies open market share sale- $400 MN
The third biggest exit was by one of the most active Indian investor ChrysCapital that had earned its spurs with many highly profitable investments at a time when the Indian stock markets had just started to rise in the first half of last decade. It helped that signs of revival in US economy and improving earnings at the IT services firm allowed its share price to rise during the year. It was also one of the biggest ever open market exits by a PE firm in India.