May 02, 2018
According to this month’s influential Bain Report, Private Equity Exits grew on the subcontinent by more than 60% in 2017 (India Private Equity Report 2018): an unprecedented $15.7 Billion, up from $9.6 Billion in 2016 and making last year the best ever year for PE exits in India. The number of exits also rose in absolute terms: 211 in all, which marks 7% growth year on year. More importantly perhaps, given this is now the third successive year of growth in exit volumes and value (stretching back to 2015), those familiar with India’s Private Equity Segment will be relieved to move on to brighter uplands, in a sector which has historically been bedevilled by low exit rates.
So what is fuelling the trend?
Well, a lot of it is undoubtedly down to the increasing resilience of India’s Capital Markets and its improved regulatory structures, mostly introduced by Prime Minister Modi’s Government since 2015. Those are both critically important because private equity investment means taking a long term stake in a business and often working with existing management on re-gearing programmes leading to realising asset value. And in India that has often meant investing in small to medium sized family run companies, mostly conservative by instinct and almost all averse to disposing of the business. So without a disposal, just how are you supposed to get your money out? That dilemma lay behind the old (and happily now outdated) adage that in India it was “easy to invest but hard to exit”.
Not anymore though…
In excess of 50% of the subcontinent’s exits in 2017 were structured through Public Markets, including Initial Public Offerings (IPOs) where much improved Market systems and Regulatory frameworks have made it much easier to exit a PE venture by selling all or part of the stake without having to sell the business (even the most conservative family business will be happy with the outcome).
And it’s not hard to find practical examples of how this is all working out on the ground: take for example Tiger Global’s secondary share sale of Flipkart for $800 million last year (making use of the new market regulations) and Apax Partners’ partial exiting of IT giant, GlobalLogic for $780 million: where for the past three years Apax were returning in excess of 20% compound annual growth on its 96% holding in the company, and the 50% stake which was disposed of reportedly sold for 300% of the original investment.
A further factor pointing to the resilience and likely long term growth in exit values is the some $9 Billion of dry powder currently held by PE Funds investing in the Indian sector (according to the same Bain Report), signalling a broad parity with equivalent dry powder levels in 2016 and strongly suggesting that the overall potential and attraction of investments on the subcontinent is likely to remain unabated for the foreseeable future.
Red Ribbon’s Private Equity Fund offers a significant opportunity to participate in India’s resurgent markets, combined with the ability to realise the initial investment after the initial lock in period but well before the ten-year period conventionally imposed by other private equity funds. The Red Ribbon Fund also benefits from the company’s unique and long standing specialist knowledge of India’s markets, with more than 100 advisers and consultants working daily on the ground in the subcontinent’s hotspots helping to identify the best available investment opportunities.
Private Equity Investment is virtually unique in the long-term vision that it requires for the business platform. Not only a full understanding of the nuts and bolts of the business, but also a viable plan for optimising asset value and a clear, if still long term exit strategy.
As the article notes, I am sure the radically improved market and regulatory conditions brought in over the last three years by Prime Minister Modi’s Government lie behind the resurgence in exit volumes and values on the Indian Market and I am confident too that with three years consistent growth on this key variable, the subcontinent is set to offer unprecedented opportunities for PE Investment.