Public market exits by PE/VC firms to see sharp rise in 2023

 – Gudstory

Public market exits by PE/VC firms to see sharp rise in 2023 – Gudstory

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In general, exit numbers have been high for PE/VC firms. The year 2021 saw a significant surge, with huge amounts of private money flowing into the Indian ecosystem, allowing record exits for early investors.

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

According to EY, by November 2023, PE/VC firms had booked $20.73 billion in total exits, up from $18.29 billion for full-year 2022, though down from $40.37 billion in 2021.

Of this, 45% of exits in 2023 are through block deals; The proportion of open market transactions was 36.2% in 2022 and 15.1% in 2021.

Notably, the 2023 figures do not include several large December transactions, including 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 included. International’s $768 million block-deal exit from MannKind Pharma in December. This indicates that the percentage of block deals in the 2023 exits could ultimately exceed 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 shifted to venture capital firms returning capital to their fund investors or limited partners.

According to Vivek Soni, partner and national leader, private equity services at EY, exits from the open market by PE/VC firms are the highest since 2017.

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

Investors are also encouraged by the benchmark Nifty and Sensex indices reaching record levels in a month. The 50-share Nifty crossed 21,000, while the 30-share Sensex crossed 71,000 in December – record levels for both the indices. This has resulted in a steady pipeline of initial public offerings hitting the market, with PEs and VCs offering fractional stakes in offerings.

“We have seen a resurgence in FII (foreign institutional investor) inflows over the past few weeks, driven by improving global risk appetite and local factors such as the outcome of state elections and India’s continued macro resilience. With continued momentum in domestic inflows, this created a strong environment for deployments, which helped absorb secondary exits through IPOs and blocks and also created a strong aftermarket for these transactions,” said 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 on Zomato and Policy Bazaar.

EY’s Soni said this trend will continue through 2024. The increase in exits mirrors a similar increase in private equity investment in public markets.

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

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

Some of the larger PE-style investments in listed companies include Bain Capital’s investment in Embassy Office Parks Reit as well as GQG’s investment in Adani Power Limited, Adani Enterprises Limited and other group entities.

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

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The majority of investments for PE/VC firms are expected to be in the unlisted sector – as these firms are poised to provide investment opportunities to larger limited partners (who invest in PE/VC funds) in the private markets. But some funds maintain a level of flexibility and the ability to invest in listed companies.

“All other things being equal, for a private equity fund, a growth investment in a listed company may be better than an unlisted company due to the ease of exit. In private market investments, they have to run a process, do detailed due diligence on investors, negotiate SPAs/SHAs etc., which takes several months,” Soni said.

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Published: 26 Dec 2023, 09:22 PM IST

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