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PE investors not waiting for public issues, says PwC

LiveMint logoLiveMint 10-06-2014 Sapna Agarwal

Mumbai: Several private equity companies who have invested in Indian companies are looking to sell their stakes to strategic investors within a year of making the investments, a PriceWaterhouseCoopers (PwC) report said. The investors, the report titled PE in India 2025, A $40 billion decade beckons? said, are not waiting for public issues.

Most general partners in the past believed that growth was more or less certain. However, this myth has been busted over the last few years. Investors have realized that there is much work to be done before exits, the report said, while explaining that investors are spending a lot more time on planning exits.

PE investments accounted for 37% at $78.3 billion of the total foreign investment of $209.8 billion into the country between 2009 and 2013. These investments went into about 4,000 businesses, the report said.

However, not more than $30 billion has been returned, according to a 2014 annual report by Bain, a consulting firm. Returned is a term used to explain whether the private equity fund has made money on the money invested.

This means only a fourth of the capital invested by PEs has seen exits and the remaining three-fourth is stuck with the general partner looking for an exit.

Many PE investments have gone bad. Retailers like Gini and Jony Ltd, Lilliput Kidswear Ltd, Spykar Lifestyles Pvt. Ltd and Koutons Retail India Ltd which were all backed by private equity investors did not give the desired returns and some of these landed up in the courts.

Also, following the global financial crisis, the capital market has been volatile and general partners prefer exits through secondary or strategic investors rather than the capital market, said Sanjeev Krishnan, leader, private equity, PwC India.

The report is based on conversations with 40 partners and principals at PE houses and shares the concerns of general partners and how the nature of how PE investments and diligence will change as the new phase of investment begins. The report poses a question if we can do $40 billion by 2025, said Krishnan and adds that in 2007 we did $16 billion so now in the next 10 years we should be able to do $40 billion.

The report also notes that with the next-generation of entrepreneurs will be more open to exit from non-core businesses and will not struggle with variables such as emotional attachment, hence the number of buyouts will increase in the coming decade. Buy-outs as a percentage of total deal value has increased from 3.7% in 2010 to 21.5% in 2012 and was 27.3% of the total deal value in 2013, said the report.

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