The Hindu Business Line : Private equity firms tap exit opportunities

Ever since the equities’ rally gathered momentum, there has been a spate of exits by private equity firms and venture capital companies through open market transactions.

Companies such as Techno Electric, Mundra Port and SEZ, Shriram Transport Finance, Lupin and Titagarh Wagons have reported selling by PE firms. Put together, PE players have sold over Rs 758-crore worth of equities since March this year.

Is this a signal that valuations are stretched?

Corporate advisors and private equity companies don’t think so. They instead attribute the exits to pressure from global investors and factors such as PE players trying to downsize their portfolios while opportunities are still available.

Explaining how the recent PE exits may not be a matter of choice, Mr Amit Chander, Head of Investments, Healthcare & Education, at Baring Private Equity Partners India, says, “It isn’t very clear why some of the PE players have exited through the open markets. In terms of valuations, while we may be at the near-term peak given that rallies in bear markets are short-lived, I don’t think their exits were based on valuations. If private equity players had the capacity to hold, they would have”.

Stark contrast

The PE exits in the recent months offer a stark contrast to the furious private investments in public equity (PIPE) deals that these firms carried out between 2005 and 2007. More than 70 per cent of the private equity money in the boom years went into PIPE deals and a good number of them were purely momentum-driven, points out Mr Nitin Deshmukh, Head of Kotak Private Equity.

Those investments may well have driven the current spate of exits. Increasing pressure from global investors and LPs (limited partners) to sell and take some money off the table would have made the firms to seize the first opportunity to cash in on the positions they held, when the opportunity popped up. “I think what the PE exits reflect, is that players do not see the valuations going back to those (bull market) levels”, he adds.

Offering a slightly differing view , Mr Vikram Uttamsingh, Executive Director and Head of Private Equity Advisory, KPMG, says that some PE firms do not see a clear rationale for the markets to be trading where they are today, especially as much of the rally “was driven by political stability and budget expectations”. That the global economy largely continues to be in poor shape may also have weighed heavily on these investors’ mind. “PEs may therefore only be using this current rally as an opportunity to sell”, he says.

Downsizing

However, some exits were made at decent profits and could have been driven by the need for PE firms to move to smaller and more manageable portfolios. “Given the present conditions, PE firms realise that they now need to work closely with their portfolio of companies and provide operational support”, says Mr Uttamsingh. While earlier, some of the private equity players kept adding on to their portfolio of companies, the recent downturn has forced them to get more involved in their companies at the operational level. Approaching maturity dates of some PE funds may also have triggered a few sells.

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