How ICICI Venture delivered exits worth $975 mn

With $2.5 billion in assets, it uses a diversified exit strategy to pick up the desired mode of exit best suited for each investment

If there is one sour point for private equity (PE) investors in India, it's the lack of exits. Most PE fund managers have struggled to generate enough number of exits on their investments and return capital to their investors. However, ICICI Venture has posted exits worth $975 million across 41 deals since April 2009, including $760 million in PE exits.

April 2009 is when Vishakha Mulye took over as the managing director and chief executive officer of ICICI Venture Funds Management Company.

The 41 exits are across four verticals - private equity, real estate, special situations, and infrastructure. What did it do differently that helped it secure these exits? Typically, PE firms invest in unlisted companies, mostly small and medium firms, nurture them and take them public. However, in the last five years, the initial public offering (IPO) market has not been good, and that strategy did not work for most firms.

"We followed a diversified exit strategy. We used capital markets when they were open, but we also sold to strategic investors, did promoter buybacks, and sold to other PEs. We used a strategy according to the nature and circumstances of the case rather than saying 'one-strategy-works-for-all'. That has been the big mantra for our success," says Mulye.

While many PE firms are waking up to this approach, ICICI Venture has been following this strategy for the past five years.

Take promoter buybacks, for instance. When PEs invest, they have a right to sell back promoters. However, buybacks are difficult to come by, and yet ICICI Venture has done six of them. "In difficult times, when there's no liquidity, promoters are the right people to give you exits. They know the worth of a company much more. We could really negotiate with promoters, which is not the case with other fund houses," says Mulye, who joined ICICI Group in 1993, led the team that executed the merger of ICICI and ICICI Bank and later became its chief financial officer.

Its 'horses-for-courses' strategy (customised strategy for each investee firm) has delivered the results. Take VA-Tech Wabag, the Chennai-based firm which makes water treatment plants. ICICI Venture believed it must take this company public as there were no listed companies in this space, and according to market sources, it made 29 times its investments through its IPO. RFCL is another firm where the PE firm was very innovative. It had three divisions: animal health care, specialty chemicals and diagnostics. It broke the company into two, and sold it off to two investors (strategic sale): Pfizer (animal health care) and Avantor, a US-based PE firm (diagnostics and fine chemicals).

Similarly, it sold its stake in Metropolis Health Services to PE firm Warburg Pincus and the stake in Sahyadri Hospitals to IDFC (both examples of secondary sales). "You should come out with an exit strategy that best suits the circumstances and the company and which can give you liquidity and returns," says Mulye.

To avoid disputes and ensure alignment with sponsors, it makes a lot of effort to identify the right sponsors. "We really work to get into a relationship with a sponsor than cry later," says Mulye. The PE firm has also used structures very effectively to get the desired returns as well as within the desired time frame. "We work closely with promoters, and try to convince them," she adds.

A related problem for PEs in India is that they have made bets at very high valuations - a key factor why they have been struggling to make exits. ICICI Venture has been able to largely avoid that by working closely with sponsors, originating deals themselves, staying away from hot deals and bidding as it is conscious of the entry price it pays. "If we like an asset, and if there's too much of a difference between us and the sponsor, we use a structure," says Mulye.

She would hope that the firm's good run continues with the new investments.
EXITS SCORECARD
Exits by ICICI Venture across verticals & funds

• Exits worth $975 million across 41 deals since 2009
• Exits worth $1.4 billion across 50 deals since 2004
• Invested $600 million across 22 new deals since 2009