Private equity investors see public markets driving exits in India

India’s private equity (PE) investors are increasingly relying on public markets to exit investments, with 2024 witnessing $26 billion in total exits, largely fuelled by initial public offerings (IPOs) and open market transactions, according to industry executives at the IVCA (Indian Venture and Alternate Capital Association) Conclave.

 

“Exits in India are largely going to come from a very vibrant public market,” said Niren Shah, managing director and head of India at Norwest Venture Partners, at the summit. “The market is getting deeper and more vibrant, so our entire strategy changed around 2017 to find those companies which are IPO-able.” He added that Norwest has taken eight companies public, with three more in the pipeline this year and four next year.

 

 

The shift in exit strategies is driven by the relative scarcity of large strategic buyouts, which are more common in the US than in India. “You don’t get the Googles coming and paying a couple of billion dollars,” said Shah. “In the US, even if a company in the startup world doesn’t do too well, somebody might pay $200 million, $500 million. It doesn’t happen in India.”

 

Healthcare and life sciences are emerging as key sectors for private capital, with significant deal flow and exits. “This sector is attracting as much as $5-5.5 billion every year,” said Visalakshmi Chandramouli, managing partner of Tata Capital Healthcare Fund. “Compared to the last 10 years, where you've seen something like about $39-40 billion, nearly 40 per cent of that has come in the last three years.” She noted that in the last three years, about 17-18 per cent of total PE exits have come from the healthcare sector, with most deals structured as secondary transactions.

 

For investors, planning for an IPO exit requires early groundwork. “Very early, we bring in independent board members, start rolling out the IPO piece very early on,” said Shah. “The market size needs to be large enough because public companies can’t be like $600 million. You want to make sure you IPO around the billion-dollar mark if you want some liquidity.”

 

Udai Dhawan, founding partner and head of India at Affirma Capital, shared a case study on how his firm structured an exit through both secondary sales and an IPO. “We invested in TBO, a travel technology platform, six years back and bought about 49.9 per cent of the company. We sold about a third of our stake at about 10 times our money, brought in General Atlantic, then did an IPO. We sold it post-listing at some 17-18 times our money. You have to think about de-risking,” he said.

 

Despite strong IPO momentum, fund managers are cautious about market volatility. “If the market drops 20 per cent, that’s business as usual,” said Shah. “Maybe under negative extreme periods, you will not be able to go for an IPO, but most times, if you build solid companies, you will be able to go out at a reasonable price.”

 

For Srinath Srinivasan, chief executive officer of Oman India Joint Investment Fund, disciplined selling is critical. “One thing we have done right is to take money off the table without waiting forever. It is a discipline. You will come under criticism from all quarters, but I think it's a good discipline to have,” he said. “We have done about seven exits between April 2023 and October 2024, including four IPOs, one full secondary, and one partial secondary exit.”

 

Mohanjit Jolly, partner at Iron Pillar, noted that market conditions dictate exit strategies. “When the sun is shining, you make hay, and that's precisely what our companies are doing by going public,” he said. Iron Pillar’s latest fund is focused on companies with annual revenue run rates of $20 million and beyond, aiming for exits within five to seven years.

 

Jolly said the firm takes a distinct approach compared to traditional private equity or diversified investor classes, maintaining a portfolio with eight companies per fund. The firm has 14 active portfolio companies and has made 16 investments overall, with two exits—one through a sale to Reliance and another via a private-to-private transaction. Of the 14 remaining, seven are based in India, while the other seven are incorporated in the US. In the first fund, two companies have exited, and of the six still in the portfolio, four are progressing towards IPOs, with Bluestone expected to go public in the coming months.

 

"When we think about US entities, the IPO market is shut. And the other thing is, you have to be a $400-500 million ARR and a profitable entity to finally list on NASDAQ. So our underwriting has always been, we want to provide a 4x gross, 3x plus net, and 25 to 30 per cent internal rate of return (IRR). That's what we're underwriting, but mostly through secondaries or potentially mergers and acquisitions (M&As), as it is quite robust, especially in the sub-$500 million category,” he added.