IPOs in 2020 dominated by PE exits
As the primary markets recouped after a three-month lull due to Covid-led disruptions and volatile stocks, public listing of companies received huge participation in 2020. However, most of the money raised through initial public offerings (IPOs) were used to provide an exit to private equity players or existing shareholders.
Around 55% of the money raised via IPOs in 2020 were meant for private equity or venture capital exits, which is at least at a five-year high compared to 24.36%, 29.09% and 26.72% in 2019, 2018 and 2017, respectively, according to data from Prime database.
Beating covid-led business uncertainties, 15 IPOs raised an aggregate amount of ₹26,611 crore this year, up 115% compared to the ₹12,362 crore raised via 16 IPOs in 2019. Out of the total, ₹14,101 crore were for PE/VC exits, while the rest was for fresh issue of shares meant for capital expansion of a company. In comparison, PE/VC exits accounted for ₹3,022 crore in 2019, ₹9,006 in 2018 and ₹17,943 crore in 2017.
“PE exits in companies through public offer has been a continuing trend in Indian IPOs for the last 6-7 years. This is a global phenomenon and indicates a maturing capital market with VC/PE investors providing the early stage risk capital,” said Pranav haldea, managing director, Prime Database group.
In 2020, 5 out of the 15 IPOs that hit the market had a prior PE/VC investment. So, out of the total fund raised in 2020, ₹23072 crore were raised via OFS, out of which ₹14101 crore was purely for PE/VC exit. Out of the 15 IPOs, 13 companies had anchor investors, which collectively subscribed to 29% of the total public issue amount. The domestic institutional investors played a significant role as anchor investors, with their subscription amounting to 13% of the amount.
The largest IPO in 2020 was SBI Cards and Payment Services Ltd for ₹10,341 crore. US-based private equity firm Carlyle Group Inc sold a 10% stake in SBI Cards and Payment Services Ltd through the IPO.
Other big ticket public issues this year were Computer Age Management Services Ltd ( ₹2244.33 crore), UTI Asset Management Company Ltd ( ₹2159.88 crore) and Gland Pharma ( ₹6479.55 crore). Out of the total, 9 IPOs received a mega response of more than 10 times (Mazagon Dock at 156 times followed by Mrs Bectors Food Specialities (138 times), Chemcon Speciality Chemicals (102 times), Burger King (86 times), Happiest Minds Technologies (82 times), Rossari Biotech (55 times), Route Mobile (52 times), Computer Age Management Services (33 times) and SBI Cards (19 times).
“In the second half of 2020, large IPOs of over ₹1000 crore have been the flavour of the season with the largest IPO being Gland Pharma. Further IPO market witnessed IPOs from covid-19 resilient sectors such as technology and specialty chemical, but as the markets turned positive, the excess liquidity and positive sentiment has resulted even covid impacted companies to raise funds or public listing,” said Kotak Investment Banking.
This year, both FIIs and DIIs agreed to participate in pre-IPOs such as CAMS, Rossari, Burger King. Kotak Investment Banking believes that this trend may continue as this is a win-win for both companies and investors.
Going ahead, IPO activity is expected to be dominated by resilient sectors such as New Age Tech, Healthcare and Consumer, but also from recovering sectors like hospitality, commercial real Estate (REITs) and BFSI, according to Kotak Investment Banking.