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| PEs in rush to sign secondary deals | | Healthcare and real estate witness largest deals |
| Reghu Balakrishnan & Samie Modak / Mumbai Feb 14, 2012, 00:17 IST |
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Private equity (PE) companies, whose investments have been stuck for four-five years due to lack of viable exit routes, are in a rush to sell stakes to peers.
High valuations and a tough initial public offer (IPO) market saw 2011 witnessing the largest secondary transactions in the domestic PE space. This year, the space has witnessed two major transactions worth $200 million, when Olympus Capital and General Atlantic bought stakes in Indian firms through the secondary route.
Vikram Utamsingh, head - PE advisory, KPMG India, said, “Those who invested in 2006-07 are keen to exit their portfolios and a key option is the secondary route. They are ready for an exit if they get a 15 per cent or more internal rate of return (IRR).”
According to a recent KPMG report, for a three-year investment period, PE in India has returned a gross IRR of 17.9 per cent, slightly above the 14.4 per cent that investors would have earned if they had made the same investments in the Sensex. Adjusted for a five-year holding period, this implied a required gross IRR of 25 per cent, it said.
This year, US-based Mayfield Fund exited its investment in Fourcee Infrastructure Equipment, when the latter received $104 million from General Atlantic. The healthcare and real estate spaces have seen the largest secondary PE deals.
Last month, Olympus Capital Asia’s Rs 500-crore investment in DM Healthcare for a significant minority stake allowed India Value Fund to make a part-exit from its four-year-old investment.
In 2010, Warburg Pincus invested $85 million (Rs 390 crore) in Metropolis Heal-thcare, paving the way for ICICI Venture to exit its four-year investment. In the same year, a group of investors — Mount Kellett Capital Management, TVS Capital Funds and India Venture Advisors — acquired about 35 per cent in MedPlus Health Services from Arcapita, Peepul Capital and NEA IndoUS Venture for Rs 450 crore.
“A PE firm buying these stakes allows the investee company more time to perform and go for an IPO when the markets are more upbeat,” Utamsingh said.
In August 2011, through its $200-million (Rs 875-crore) in-vestment in an Embassy Property Developments–promoted SEZ, Blackstone financed the buyback of HDFC Property Ventures’ five-year-old stake by the Embassy group.
In March 2011, Kotak Realty Fund sold Peepul Tree Properties, a wholly owned undertaking, to Tata Realty and Infrastructure and Tata Realty Initiatives Fund 1 for an enterprise value of Rs 525 crore ($117 million).
On an initial equity investment of Rs 95 crore made in 2006, Kotak Realty received Rs 400 crore from the exit, including internal accruals.
According to V Hari Krishna, director, Kotak Realty Fund, real estate will witness more secondary transactions this year, especially in the areas of information technology (IT) parks, IT SEZs and hotels. “Through secondary deals, new investors will be able to buy projects with lesser risk, compared to initial investors,” he added.
Industry expects more secondary transactions to take place, as the revival of the IPO market may take more time.
Girish Nadkarni, head of equity capital market at Avendus Capital, said: “There are not too many IPOs able to hit the market. This situation might take another couple of months to improve.”
V Jayasankar, executive director and head of equity capital markets at Kotak Mahindra, said, “The liquidity coming into the market will help the primary market. If the Budget is good, one can hope for a revival in the primary market.”
According to Bloomberg data, there were 37 IPOs in 2011, which raised Rs 5,972 crore, against 65 IPOs that raised Rs 37,757 crore in 2010.
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