Cloud on India, PE firms selling out to one another

  • Ramsurya Mamidenna, Hindustan Times, Mumbai
  • Updated: Aug 03, 2015 23:10 IST

Most of the private equity (PE) deals which have been completed in 2015 have been secondary transactions with private equity (PE) firms selling their stake in an investee company to each other.

This signals that fresh investments into companies, other than real estate and start-ups is not shaping up, said heads of different PE firms.

“Over the last three to four years, one of the trends that has been visible is that secondary deals have gone up,” said JM Trivedi, partner, Actis, one of the first global PE firms to set shop in India. “As the IPO market was at a standstill, most PEs looked at selling to other PEs for exit. In some cases, investee companies were impacted by the slowdown in the economy and failed to achieve the level of growth and profitability to make them good IPO candidates,” he added.

While the deal size looks robust, these transactions also include those in start-ups and real estate. PE firms are also increasingly investing in startups, a space that was previously catered to by venture capital funds and angel investors.

“Most of the deals are of exit deals,” said Bharat Banka, former chief executive of Aditya Birla Private Equity. “There is very little new investment coming into companies these days as the economic revival hasn’t started and companies have not been able to scale up to levels for a favourable exit.”

Fairwinds Private Equity CEO Ramesh Venkat points that currency fluctuations are another deterrent.

“Depreciation of the rupee against the dollar is also a reason for the secondary transactions. Moreover, when a PE firm invests in a company it does after extensive due diligence. So for the new PE firm half of the work is already taken care of. This promotes faster closure of secondary transactions,” he added.

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