PE firms increasingly optimistic about exits in India: Panellists at VCCircle summit

Private equity firms are increasingly optimistic about exiting their investments in India thanks to a pickup in secondary deals and strategic transactions as well as an improvement in primary markets, said panellists at News Corp VCCircle Limited Partners Summit.

"Just three or four years ago, one of the biggest challenges was lack of exits in India. Hardly any money was coming back but things have changed quite dramatically," said Mathew Cyriac, who recently stepped down as co-head of private equity business at Blackstone in India, in a panel discussion moderated by Bill Spindle, South Asia bureau chief of The Wall Street Journal.

Private equity investors unlocked $6.8 billion worth of investments across 239 exits in 2016 and though the total number of exit deals fell from 2015, the deal value jumped by 17%, according to VCCEdge, the data and research platform of News Corp VCCircle.

Blackstone itself has returned over $1.3 billion over the last few years, said Cyriac who has taken over Florintree Advisors, a Mumbai-based alternative asset management firm. He said Blackstone prefers the one-shot exit which is not possible in an initial public offering (IPO) that comes with the condition of a lock-in period, among others. 

While the industry is seeing exits via secondary, strategic and IPO routes, one trend that has not played out fully is control deals, he noted.

Dhiraj Poddar, country head, India, at TA Associates concurred with Cyriac and said exits have been good in the last couple of years compared with 2010-12 when exits were few and far between.

However, unlike Blackstone, TA Associates' fund is structured in a manner through which it holds the stake for a longer period that gives it the liberty of working on the exit, Poddar said. 

"We pick up assets where we believe would have multiple ways to exit," he said. The private equity firm has invested in 12 companies in India and its most visible exit has been from diagnostics company Dr Lal PathLabs during its IPO. It partially exited the diagnostics firm during the public issue in December 2015.

The panellists also said it is importance for private equity firms to engage with the companies they invest on the exit strategy right at the time of the investment.

"Private equity firms should start preparing for exit parallely when they invest in the company or while doing the diligence," said Shashank Singh, partner and India head, Apax Partners, which is focused on buyout and large ticket size deals.

The firms also need to be agile and grab the opportunity for exits as the economic environment keeps changing, Singh said.

"Exit windows are open for a brief period of time. IPO market opens and shuts quickly and inbound interest in India is fleeting," he said. Apax Partners, which has been investing in India for the last 10 years, has returned about $2.5 billion, he added. It has fully exited three companies and has partially exited one.

Sudhir Variyar, managing director at Multiples Alternate Asset Management Pvt. Ltd, said firms should assess the entrepreneurs’ strategy on whether they want to sell the company and then infuse a sense of urgency to hand over the company to a new set of investors.

Private equity firms should also see whether the sectors they are investing in would throw up exit opportunities. Post 2009, a lot of financial services, technology and pharma companies have been able to see exits, Variyar said.

While the exit route for PE firms through IPO is looking up, venture capital firms have also something to cheer about with beneficial regulatory changes, said Rishi Kohli, managing director, Monsoon Capital.

Market regulator Securities and Exchange Board of India (SEBI) has in the past years launched an SME platform for listing of small and medium sized companies and an NSE institutional trading platform (ITP) for startups.

The market cap of firms listed on the NSE ITP platform is already close to Rs 9,000 crore and the rules for listing are easy, Kohli noted. This is something startups should look at, he said.

The panelists also said although opportunities for exits have improved, challenges such as a weakening economic environment, unclear tax issues and rupee depreciation remain.

Kohli said Monsoon Capital has adopted a dynamic forex hedging strategy to counter currency turmoil.

"In the last six-seven years, rupee depreciated significantly. That is something we worry about. We managed to save about 3-3.5% annualised just from the dynamic forex hedging we do," he said.

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