Exit numbers, in general, have trended higher for PE/VC firms. The year 2021 saw a significant jump, with massive amount of private money flowing into the Indian ecosystem, allowing record exits for early investors.

But, the nature of the exits in the last two years has changed.

Till November 2023, PE/VC firms had booked $20.73 billion in total exits, higher than $18.29 billion for the entire year 2022, though lower than $40.37 billion worth of exits in 2021, according to EY.

Of this, 45% of exits in 2023 have been through block deals; the proportion of open market transactions was lower at 36.2% in 2022, and 15.1% in 2021.

Significantly, for 2023, the numbers do not include several large-ticket December transactions, which included Bain Capital’s sale of $440 million worth of shares in Axis Bank, or Blackstone’s $830 million full exit from Embassy Reit in the open market, or ChrysCapital and Capital International’s $768 million block-deal exit from Mankind Pharma in December. This indicates that the percentage of block deals in 2023 exits may eventually end up much higher than 45%.

Other significant large PE/VC-led block deals in 2023 include BPEA EQT’s $900 million exit from Coforge in August. SoftBank and Tiger Global sold blocks in Zomato, Paytm, Delhivery, and PolicyBazaar, as the focus turned on venture capital firms returning capital to their fund investors or limited partners.

Open market exits by PE/VC firms have been the highest since 2017, according to Vivek Soni, partner and national leader, private equity services, EY.

“Large block deals have happened and are happening with minimal discount or disruption to stock price,” Soni said.

Investors have also been buoyed by the benchmark Nifty and Sensex indices hitting record levels over the month. The 50-stock Nifty crossed 21,000, while the 30-share Sensex crossed 71,000 in December—both record levels for the indices. This has resulted in a steady pipeline of initial public offerings hitting the market, with PEs and VCs offering partial stakes in the offering.

“We saw a resurgence in FII (foreign institutional investor) inflows over the past few weeks, driven by an improvement in global risk appetite and local factors such as the outcome of state elections and continued India macro resilience. This, in combination with continued momentum in domestic inflows, created a strong environment for deployment, which helped absorb secondary exits through IPOs and blocks and also resulted in a strong aftermarket for these transactions,” Subhrajit Roy, head, India global capital markets, Bank of America, said. The firm has advised multiple sellers on block deals in 2023, including arranging trades in Zomato and Policy Bazaar.

EY’s Soni said that this trend would continue into 2024. The rise in exits is mirroring a similar uptick in private equity investments in public markets.

Total PE/VC investments in 2023 till November-end stood at $47.1 billion, down from $56.1 billion in 2022. But the proportion of PE/VC-style investments in listed markets saw an uptick.

“This year, nearly 17.5% of the total PE/VC investments were PIPE investments (Private Investment in Public Equity) which has never happened before. We can say that definitely this year listed companies have attracted more attention from private equity funds. This is especially true for the growth-oriented funds (which take minority positions) as the listed space is a bit more complicated for control deals,” Soni said.

Some large PE-style investments in listed companies included Bain Capital’s investment in Embassy Office Parks Reit as well as GQG’s investment in Adani Power Ltd, Adani Enterprises Ltd, and other group entities.

“With over thousands of listed mid-cap and small-cap companies which are not covered by any analyst, the Indian markets offer a gold mine of opportunity to investors that use a private equity approach to public investing,” Soni added.

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The bulk of the investmetns for PE/ VC firms are expected to be in the unlisted space—as these firms are geared towards offering investment opportunities to large limited partners (who invest in PE/VC funds) in private markets. But some funds retain a level of flexibility and the ability to invest in listed companies.

“All other things remaining the same, for a private equity fund, a growth investment in a listed company may be superior to an unlisted one because of the ease of exit. In a private market investment, they would have to run a process, investors would do a detailed due diligence, negotiate SPA/SHA, etc. all of which takes several months,” Soni added.

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Published: 26 Dec 2023, 09:22 PM IST