A near-total lack of exits has characterised the past few years in Indian private equity. After investors lavishly supplied capital to GPs in the country during the early- to mid-2000s, which was then largely (and some say not always responsibly) invested into minority stakes into businesses that were often relying heavily on growth and sometimes weak on corporate governance, many firms have not delivered.
The average IRR of private equity exits in India halved during 2010-2013, dropping to 15 percent compared to 30-60 percent IRR during the period 2004-2009, according to a report by Venture Intelligence and Avalon Consulting, which calculated IRR based on aggregate figures for 60 percent of India deals.
Just under $14 billion worth of private equity investments are now waiting to exit in India – most firms having been invested in these assets for over six years, according to the report.
But now a new dawn appears to be beginning, with renewed optimism categorising the current mood in the industry. And, right on cue, a number of private equity firms are back in the market to tap old and new investors with a fresh India story, wounds healed and lessons learnt.
LPs are likely to take note of some more than others. Some managers have already disappeared from view, and further consolidation seems inevitable as the flight to quality continues. Those who prevail will have their track records examined meticulously, as LPs are unlikely to be cheap dates this time around.
Big names reappearing in the market include ICICI Venture, the private equity arm of ICICI Bank, which launched a $500 million vehicle in November. The firm declined to comment on fundraising, but it is one of the few Indian firms that can show realisations. Since its debut fund, which was raised in 2003, the firm has delivered a 3x multiple and 50 percent IRR across its products, realising about $750 million worth of exits over the past four years, according to sources.
Another brand name manager that has returned to market is Everstone Capital Partners, which is understood to be marketing its third fund with a $650 million target. Everstone has said in the past that it will focus on making control investments rather than buying minority positions, an aspiration that LPs will undoubtedly approve of, and which other Indian GPs will share.
“Buyouts are beginning to happen in this country. You are beginning to see that you can actually go and buy businesses, I see it on a daily basis, you’ll find that our current fund we are investing will end up with two-thirds control transactions,” Everstone co-founder Sameer Sain said.
For example, the firm’s most recent deal, in November, saw Everstone take a majority stake in Indian software business Servion Global Solutions in a deal worth $66 million.
Deal flow in India has already rebounded, with $5.3 billion invested in the country to mid-November this year, a 77 percent jump from the amount invested during the whole of last year, according to data from Thomson Reuters. Moreover, it appears that capital is flowing into larger deals, with the number of transactions decreasing 26 percent to 260 this year, compared to 352 last year.
For these indicators to continue to strengthen, it will help if the new Modi government can deliver on its structural reform agenda.
Private equity investors are looking on intently. Juan Delgado-Moreira, managing director at Hamilton Lane, said at PEI’s India Summit in October: “India doesn’t really fall off the agenda – and I don’t even think it has been out of favour for that long. I think we are about to see a wonderful fundraising cycle again.”