Fewer Exits Sobers the PE Story
By siliconindia   |   Thursday, 12 January 2012, 20:48 IST
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Fewer Exits Sobers the PE Story
Bangalore: India's Private Equity Industry is soon to encounter sobering days.PE funds earn lesser money as the number of exits is declining by half, which gives rise to concerns for global risk investors making them worried about the poor returns from the country. 55 investments netting $2 billion exited the PE funds in 2011. A JM Financial note on private equity sector in India said that this was considerably worse compared to $3.4 billion earned in 108 exits during the previous year. The last one decade poured huge returns for big Indian Investments by Limited Partners (LPs), who are investors in PE funds. "The muted stock market activity with declining FII inflows have lowered valuations leading to fewer PE exits last year," said Devinjit Singh, MD at Carlyle Group. Initial Public offerings (IPOs) of Jubilant Foodworks and SKS Microfinance, backed by PE has spiced flavored up the story but the stock market grabbed momentum last year. Industry data bank Venture Intelligence said that PE backed only 4 IPOs compared to 24 last year in 2010. As funds turned alert on valuations, more than $1 billion worth of new investments came unstuck. The new deals made during 2011 came up to $8.3 billion with just a 10 percent rise from $7.5 billion in the last year. Out of 300 PE funds in India only 200 are active in present conditions. Exposing the Private Equity Partners, Managing Partner, Rahul Bhasin blamed the structural biases as the investments have earned less money since 2005. He said, "There's too much private equity, with fund managers having fat pay cheques in a market with one of the poorest governance practices. So when they invest at unrealistic valuations, exits are going to be a problem." He further added, "Then there has been an institutional bias against private equity whenever a problem arises with the promoter. There's no point in covenants if you cannot enforce them." As TPG and Bain Capital locked in a lawful quarrel with owners of kids wear apparel brand Lilliput, it result chilling ties with between PEs and promoters. Private Equity investors are expected to rise out of this crucial phase with their holding powers, argue sectoral optimists. The downturn in the capital market is forcing the promoters of PE backed companies to sell out. JM Financial MD Bhavesh Shah, said, "Strategic deals may be the way forward for private equity in India. There remains a robust overseas interest to buyout assets here for growth, and local promoters are opening up to strategic M&As." Blackstone's Intelenet auction to UK's Serco and General Atlantic's share trade in Patni Computer to iGate were the major PE exits last year. The Indian promoters fancying a huge premium to public markets may allow global corporations speed up acquisitions in growth markets.

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