Season for private equity exits via IPOs

The current fiscal might see the highest number of private equity exits through the IPO route in the past three years. While one private equity exit via IPO route has already taken place, there are at least six more private equity investors who might be able to exit their investments in fiscal 2015.

The buoyant secondary markets, along with a revival in investors’ sentiments towards primary markets, as highlighted by huge subscription response to a few recent IPOs, has encouraged several companies to follow suit.

While one of the private equity-backed companies, Monte Carlo Fashions, has already received regulatory clearances to come out with an IPO, there are currently five PE companies — Ortel Communications, Uniparts India, PNC Infratech, CL Educate and ACB India — who are awaiting market regulator Sebi’s approval for coming out with IPOs in order to provide partial or full exit to their respective PE investors.

Raja Lahiri, partner at Grant Thornton India, says overall there has been quite a good pick-up in deal volume so far this fiscal and IPO markets are much better, largely driven by revival in business sentiments and investment climate. “A lot of companies are preparing themselves for IPOs and action picks up around the Diwali festival,” believes Lahiri.

The combined PE capital (at entry price) that is likely to see exits would be around R600 crore or $100 million. Though the amount is quite small considering Avalon consulting’s estimate of R80,000 crore of over six-year-old PE investments that are waiting to exit, the number of exits would help the private equity industry to return money to its investors.

In terms of returns, Henderson Equity Partners exited their 2008 investment in Sharda Cropchem at 2.2 times, while NSR might make over twice the returns on its six-year-old investment in Ortel Communications if the IPO is priced above R200 per share.

Similarly, Gaja Capital may make over 1.5 times returns based on the latest private transaction reported in the draft herring prospectus.

Gopal Jain, managing partner at Gaja Capital, believes that a strong rally in secondary markets over the past five months has not only given private equity investors in listed companies an opportunity to liquidate some of their holdings, but has also led to a gradual opening of the IPO window.

The BSE Sensex so far this fiscal has risen by nearly 18% led by upbeat investor sentiments towards corporate India growth.

However, experts believe that not all unlisted companies would be able to tap primary markets. “The bar will be higher for companies this time, as only those with growth and good governance would find it easier to raise money through primary markets successfully,” said Jain.

 The article appeared in the Financial Express. The article can be found here.