McKinsey: Indian exit multiples on the rise

Indian private equity, known for its scarce exit options, is changing for the better, says McKinsey.

Exit multiples in India have increased from three years ago, according to analysis by McKinsey & Company.

Average exit multiples across the years 2013 to 2014 were approximately 1.7 times EBITDA, according to the consultancy. For 2015 and Q1 2016, the same figure is 2.1 times, as capital markets have “opened up”, said McKinsey director Vivek Pandit.

Private equity firms have previously viewed India as a destination with narrow exit options, especially between 2000 to 2008, when only a quarter of the $51 billion invested in the period had been returned to investors as of last year, according to the firm. Reasons for sluggish exit activity cited by McKinsey in a 2015 report include public markets becoming extremely selective, increased regulatory uncertainty, a weak rupee, and decreasing interest in Indian businesses.

The exit environment for private equity firms in India has improved, the firm says, driven in part by strong gross domestic product growth and market friendly reforms.

During the first quarter of 2016 there were 35 private equity exits worth $2.59 billion, 50 percent higher than the previous quarter, which recorded exits worth $1.67 billion in 59 deals, according to data from PwC. Some notable deals include KKR’s $1.05 billion exit from Alliance Tire Group and Advent International’s $231 million exit from Care Hospitals.

Sectors that returned the most capital to investors include information technology, business process outsourcing, and financial services, with at least one-third of the capital invested returned at an internal rate of return higher than 14 percent. Engineering and construction, consumer goods, machinery, and industrials that generated IRRs of more than 14 percent.