Private Equity: Optimizing the regulatory landscape and exits - April 2017 - Deloitte
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Private Equity: Optimizing the regulatory landscape and exits April 2017
Private Equity: Optimizing the regulatory landscape and exits
03
Private Equity: Optimizing the regulatory landscape and exits 04
Private Equity: Optimizing the regulatory landscape and exits
05
Private Equity: Optimizing the regulatory landscape and exits
Foreword
The private equity and venture capital outlook are helping shape a favorable
eco-system in India has played a pivotal investment environment in India, as well as
role in providing a much needed growth opening doors for profitable exits. Further,
and high-risk capital to companies and with over USD 42 billion worth of large
businesses in India over the last fifteen ticket (greater than USD 50 million size)
years. Since early-2000s, private equity and private equity investments over two years
venture capital funds have invested over in vintage still un-exited or partially exited,
USD 150 billion in India and also generated exit activity is also expected to pick up in
market-beating returns. While 2016 turned the near future.
out to be a year of micro-correction, 2016
saw large pension funds step up their bets This paper is an effort towards
on India. understanding the impact of the regulatory
changes in the Annual Budget 2017 on
From a tax and regulatory perspective, the private equity industry, the recent
the overall investment landscape has private equity exit experiences and their
witnessed a number of positive changes future outlook, and a deliberation on the
over the last couple of years. Some of the development of the Fund of funds industry
measures include the easing of FDI norms in India from a regulatory perspective.
across key sectors, and providing clarity
and certainty by renegotiating the double We thank the key industry participants
tax avoidance treaties with Mauritius, including regulators, private equity funds
Cyprus and Singapore. Further relaxations and numerous Indian business heads
such as permitting FDI into LLP under the whose periodic views and inputs have
automatic route where 100 percent FDI is helped us shape and crystallise our
allowed, and the removal of restrictions on thoughts.
LLPs to avail ECCB, also give a fillip to the
investment community.
Looking ahead, India is on the cusp of a
renewed growth-trajectory, and the private
equity industry is geared to partake in
this growth story. With over USD 7 billion
worth of dry powder committed to India,
and fresh fund-raises by leading private
equity funds alone topping USD 2 billion Andy Khanna
in 2016, there is sufficient capital available Partner and Head
to be deployed. Buoyant capital markets, Private Equity, Financial Advisory Services
a hot M&A market and a vibrant economic Deloitte Touche Tohmatsu India LLP
06
Private Equity: Optimizing the regulatory landscape and exits
Message from ASSOCHAM
The India growth appears to be established global counterparts for market
intact, notwithstanding the impact of share. The announcements in the Union
demonetization announced in November, Budget 2017 have further added to investor
2016, India is expecting to regain the position confidence and are expected to help regain
of the fastest growing major economy the investment momentum in the near
in 2017. This long term growth trend term.
coupled with the strength of India’s internal
consumption market is what continues to I would like to congratulate the PEVCAI/
attract PE/ VC investment dollars into the ASSOCHAM Team for organizing the Annual
country. PEVCAI Summit 2017 at the beginning of
the financial year and we hope that the
The PE/VC industry remained busy with fund deliberations will be meaningful for the PE/
raising activity as the industry raised USD VC Industry for their future investments
4.2 billion across 39 funds. This momentum programs.
continued from 2015, which saw USD 5.7
billion raised across 43 funds. With an
estimated dry-powder of over USD 7 billion
at their disposal, 2017 could be a record year
for PE/VC investments in India.
Historically, exits have been a challenge
across the PE/VC industry in India. But the
industry witnessed highest value of exits in
2016 in the past five years.
The PE/VC industry has been one of the
key pillars to India’s growth, providing the
country with significant capital investment. With warm regards,
Strong start-up funding by these firms have D. S. Rawat
led to some of the Indian companies earning Secretary General,
the status of unicorns and challenging their ASSOCHAM & PEVCAI
07
Private Equity: Optimizing the regulatory landscape and exits 08
Private Equity: Optimizing the regulatory landscape and exits
Contents
1. Fiscal Act 2017: Private Equity and
Regulatory Challenges 12
Annual Budget 12
Policy updates 12
Tax updates 13
Budget 2017 – Some of the Misses 15
2. Recent Exit Experiences and Future Opportunities 16
Private Equity Investments 16
2016 in review 16
Major investors 17
Recent trends 17
Private Equity Exits 18
Overview 18
Exits by sectors 21
Exit routes 25
Exit through M&As 25
Exit through IPOs 27
Exit through open market and secondary sale 28
Exit through buybacks 29
Outlook 29
PE/VC investments 29
Outlook for PE exits 30
Exit routes for PEs 33
In Summary 35
3. Developing Fund of Funds Industry in India 36
Setting the context 36
Sovereign wealth funds 36
Regulatory perspective 38
4. About Deloitte 40
5. About ASSOCHAM 41
09
Private Equity: Optimizing the regulatory landscape and exits 10
Private Equity: Optimizing the regulatory landscape and exits
11Private Equity: Optimizing the regulatory landscape and exits
1. Fiscal Act 2017: Private Equity and
Regulatory Challenges
Annual Budget under the automatic route in those sectors/ 04. Amendment to the Arbitration
From a tax and regulatory perspective, the activities where 100% FDI is allowed under Act to streamline institutional
overall investment landscape has witnessed automatic route and there are no FDI linked dispute resolution arrangements in
a number of positive changes, over the performance conditions. Also, restrictions infrastructure.
last couple of years. The government has on LLPs to avail ECB have now been 05. Provision for INR 100 billion for
meticulously taken initiatives to make it removed. recapitalization of banks.
easier to do business in India, in order to 06. To create a Payments Regulatory Board
attract more foreign investments into the The Union Budget 2017 was announced in the RBI replacing the existing Board
country. in the backdrop of a lot of expectations for regulating Payment and Settlement
from across sectors. The Finance Minister Systems.
Some of these measures include the did well by not disturbing the growth 07. An additional sum of INR 80 billion
easing of FDI norms in a number of momentum and there were not too many allocated to complete ten million houses
sectors including aviation, e-commerce unwelcome surprises. A few amendments under the Pradhan Mantri Awaas
and pharmaceuticals, and providing clarity have a direct impact on the private equity Yojana-Gramin, increasing the total fund
and certainty by renegotiating the double sector and the same have been discussed allocation to INR 230 billion.
tax avoidance treaties with Mauritius, below. 08. Long Term Irrigation Fund—corpus
Cyprus and Singapore. Considering the increased to INR 400 billion.
investors’ concerns regarding GAAR Policy updates 09. Micro Irrigation Fund—initial corpus INR
(General Anti-Avoidance Rules) and Place 01. Affordable Housing to be given 50 billion.
of Effective Management (POEM), CBDT Infrastructure status. 10. Dairy Processing and Infrastructure
issued circulars in January 2017 clarifying 02. FIPB to be abolished, and further Development Fund—corpus of INR 80
the implementation of GAAR and provided liberalization of FDI policy under billion.
guiding principles for the determination consideration.
of POEM. Additionally, to reduce litigation, 03. Security receipts issued by a
circulars were also issued to provide clarity Securitization company or a
on characterization of gains from listed and reconstruction company would be
unlisted securities. Further, the LLP regime permitted to be listed and traded on
has been relaxed by permitting FDI into LLP stock exchanges.
12Private Equity: Optimizing the regulatory landscape and exits
Tax updates B. Purchase of listed equity shares in a not be subject to STT and would
Exemption on long term capital gains company is not through a recognised be regarded as purchase of listed
stock exchange. equity share not entered through
•• Exemption on sale of long term
a recognised stock exchange and
listed equity shares is available if the
Here, the term ‘purchase’ is subject to hence long term capital gains
transaction of sale is chargeable to
interpretation. This category is wide exemption would not be available.
Securities Transaction Tax (‘STT’).
enough to cover various transactions Therefore, off-market purchase of
within its ambit. Transactions which listed equity shares by private equity
With effect from 1 April 2018, shares
are genuine could also be covered entities such as SEBI registered
acquired on or after 1 October 2004,
in this category (such as ESOP, off Alternative Investment Funds and
shall be exempt from tax only if STT is
market purchase of listed shares in nonresidents/residents acquiring
chargeable at the time of acquisition of
negotiated deals, etc.) and this would controlling stake from promoters
such shares. The above conditions will
create hardship for assessees in such should be specifically excluded from
not apply to the acquisitions notified by
cases. the scope of third proviso to section
the Central Government.
10(38).
Private Equity transactions in listed
The Central Government has recently
spaces typically involve a combination C. Acquisition of equity shares of a
issued a draft notification for public
of primary investment and secondary company during the period when the
comments which provides that all the
acquisition from promoters. shares are delisted to the period they
acquisitions other than the ones specified
Secondary acquisition also includes are again listed on recognised stock
below would be exempt even if no STT is
the acquisition of controlling stake of exchange.
chargeable on such acquisition—
listed equity shares from promoters
A. Acquisition of listed equity shares of a
in an off-market transaction. Private Here, the notification includes the
company—
Equity may acquire listed equity day when the company is again listed
a. Whose equity shares are not
shares off-market for the following on the recognised stock exchange
frequently traded; and
reasons: resulting in a scenario that shares
b. Acquisition is made through
bought on a recognised stock
preferential issue other than
–– Foreign investors are permitted exchange on the day of the listing of
those to which Chapter VII of
to buy listed shares on the market shares, on which STT has been paid,
the Securities Exchange Board
only if they are registered as would also be subject to tax in the
of India (Issue of Capital and
Foreign Portfolio Investors. Not all hands of transferor at the time of
Disclosure Requirements)
offshore Private Equity entities may sale of such shares on the recognised
Regulations 2009 does not apply.
have an FPI entity to invest in listed transaction.
equity shares.
Acquisition of shares of a company
–– Foreign Portfolio Investor cannot From the point of view of private equity,
whose equity shares are frequently
hold more than 10% equity in a the issues highlighted above need to be
traded on recognised stock exchange
listed company. addressed in the final notification.
will not fall within the purview of the
–– Secondary acquisition price may be
above. However, the definition of
different from the prevailing market Indirect transfer provisions
“frequently traded shares” is such
price, making the acquisition on
that it may be difficult for a person •• It has been clarified that the provisions
market difficult.
acquiring shares to find out whether of indirect transfer shall not apply
–– Negotiation deals are difficult to
the shares are frequently traded to investors of Foreign Institutional
go through on the market without
or not. Hence, there is a need for Investors (FIIs), for the period from
there being a leakage.
further clarity. 1 April 2012 to 31 March 2015, and
Foreign Portfolio Investors (FPIs) that
It is important to note that in case of
are registered as Category I or II with
such off market secondary purchase,
the Securities and Exchange Board of
the seller would end up paying tax
India from 1 April 2015 onwards. This is a
in India since the transaction would
welcome announcement.
13Private Equity: Optimizing the regulatory landscape and exits
Rupee denominated bonds •• Scope of section 56 of the Act has been of shares of a company, other than the
widened to cover receipt of sum of company in which public are substantially
•• Transfer of “rupee denominated bond”
money, any property, or any immovable interested, shall be available to non-
but issued outside India by an Indian
property by a person from any other residents, for transfer made during 1
company, from one non-resident to
person (i.e. all categories of tax payers April 2012 to 31 March 2016. This puts
another shall not be regarded as a
included) without consideration or for to rest the uncertainty that was there for
taxable transfer.
inadequate consideration in excess of the interim period.
•• Foreign exchange gain arising at the time INR 0.05 million.
of the redemption of rupee denominated Interest
bonds which was allowed to be ignored Going forward, across asset classes and In line with the recommendations of
in case of primary/initial subscribers is across tax payers, there will be a greater OECD’s BEPS Action Plan 4, it is proposed
now allowed to be ignored in the hands thrust on executing transactions at fair to restrict the deduction of excess interest
of any subsequent acquirer of such rupee value. claimed by an entity on debt from its
denominated bonds. associated enterprise.
Others
•• The concessional rate of TDS of 5% on
The salient features of these provisions are
interest payment in respect of external •• Conversion of Compulsorily Convertible
as follows:
commercial borrowings has been Preference Shares (CCPS) into equity
extended for borrowings up to 1 July shares will be specifically tax exempt
Applicable to expenditure by way of
2020. The benefit of 5% TDS is further with effect from 1 April 2017. Further, the
interest or of similar nature payable
extended to interest payable on rupee holding period of such equity shares will
by an Indian company or a permanent
denominated bonds (masala bonds) date back to when the shares were first
establishment of a foreign company in India
issued outside India before 1 July 2020. acquired as CCPS. The cost of acquisition
in respect of any debt:
This is with retrospective effect from of such equity shares will also be the
a. issued by a non-resident associated
1 April 2016. same as the cost of acquisition of CCPS.
enterprise; or
Since the amendment is prospective, it
•• With the above amendments, as a debt b. where associated enterprise provides
in a way, casts some doubt over the tax
raising instrument from offshore, rupee an implicit or explicit guarantee to the
treatment on earlier conversions of CCPS.
denominated bonds should gain some lender; or deposits a corresponding
traction. •• The concessional rate of a TDS of 5% and matching amount of funds with
on interest payable is extended up to the lender and interest, or a similar
Relaxation to eligible investment fund interest paid before 1 July 2020 to FII and consideration that exceeds INR 10
QFI on their investment in Government million.
•• For the purpose of safe harbor provisions
securities and rupee denominated
for investment funds, the requirement
corporate bonds, provided the rate of Interest expense disallowance to
of average monthly corpus of INR 1,000
interest does not exceed prescribed a. Total interest of less than 30% of
million for an investment fund shall not
limits. This is a positive development. earnings before interest, taxes,
apply in the year of winding up.
depreciation and amortization (EBITDA)
Shifting of base year for the purpose of in the previous year; or
Several changes are required for the
computing capital gains b. Interest paid or payable to the
safe harbor provisions to make the same
associated enterprise for that previous
practically feasible, and hence this is still on •• The base year for indexation purpose
year, whichever is less.
the unfinished agenda for private equity. while computing capital gains has shifted
from 1 April 1981 to 1 April 2001. This
Carry forward of interest disallowed
Anti-abuse provisions may lead to lower capital gains in certain
situations, depending on the year of •• Up to eight assessment years
•• If the consideration for transfer of shares
acquisition and fair market value in 2001. immediately succeeding the assessment
of a company (other than shares listed on
year for which the disallowance was first
recognised stock exchange and traded
Concessional rate for long term capital made; and
regularly) is less than the Fair Market
gains
Value (‘FMV’) determined in the manner •• Allowed as deduction against income
prescribed, the FMV shall be deemed to •• A clarification was issued that the from business to the extent of interest
be the full value of consideration for tax concessional rate of 10% for long term restriction specified above.
purposes. capital gains arising from the transfer
14Private Equity: Optimizing the regulatory landscape and exits
Exclusions- Business of banking and issued by the competent authority. The full
insurance. value of consideration in this case will be
the stamp duty value of their share in the
While this is in line with international tax project on the date of issuance of the said
practices, it would have an adverse impact certificate as increased by any monetary
on debt funding by private equity, and consideration received.
IRRs in such transactions would get hit
on account of the disallowance. There is a Such benefit would not be available in case
need to provide for an exemption from this such an assessee transfers their share in
provision for the infrastructure and start the project on or before the date of issue
up sector, where huge debt investment is of the said certificate. In this case, capital
the norm. gains will be taxed in the year of transfer
as per the general provisions. Further,
Tax holiday for affordable housing an amendment has been proposed to
relaxed withhold tax at the rate of 10% from the
Currently, 100% deduction can be claimed monetary consideration payable to a
in respect of profits and gains derived from resident. The cost of acquisition of the
developing and building certain housing share in the project in the hands of the
projects subject to the fulfillment of landowner shall be the amount which is
specified conditions. deemed as full value of consideration, i.e.
stamp duty value. Only individual and HUF
It is proposed to relax the specified are covered.
conditions as under:
Budget 2017 – Some of the Misses
•• Size of residential unit to be measured
The following key expectations of the PE/
using “carpet area” as against “built-up
VC industry remain unaddressed:
area.”
•• Deferral of POEM to provide adequate
•• Restriction of 30 square meters on the
time to analyse the impact of the final
size of residential units not to apply to
POEM guidelines.
the places located within 25 km. from the
municipal limits of Chennai, Delhi, Kolkata •• Increasing the threshold limit for
and Mumbai. triggering indirect transfer provisions
from the existing level of 5 per cent in
•• Time limit for project completion to be
order to carve out overseas transfer
extended to 5 years from 3 years.
not resulting in change in control or
management of underlying Indian entity.
As per the Real Estate (Regulation and
Development) Act, 2016, “carpet area” •• Relaxations were also expected in
means the net usable floor area of an the conditions relating to investor
apartment, excluding the area covered by diversification and threshold of
the external walls, areas under services participation interest of a single investor
shafts, exclusive balcony or verandah in the fund to make Safe Harbour Norms
area and exclusive open terrace area, but practically implementable.
includes the area covered by the internal
•• Tax pass-through status for Category III
partition walls of the apartment.
AIFs.
Joint Development Agreement •• Relief to AIFs from withholding tax
In case of joint development agreements, obligation on the distribution of exempt
the year of taxability of capital gains has income to resident investors or on
been a matter of litigation. It has been now distribution to resident investors who are
proposed that in case of an individual or exempt from tax.
HUF entering into the JDA, capital gains
•• Relief to foreign investors of Cat I and II
would be chargeable in the previous year
AIFs from the filing of return of income.
in which the certificate of completion is
15Private Equity: Optimizing the regulatory landscape and exits
2. Recent Exit Experiences and Future
Opportunities
Private Equity Investments investments stay flat in the USD 11 billion However, 2016 turned out to be a year
2016 in review to 12 billion range. The break-out started of correction, with private equity and
in 2014, with a growth of 21 percent in venture capital deal volume and value
The Private Equity (PE) and Venture Capital investment value over 2013. And by 2015, declining by 33 percent, each. One of the
(VC) investment activity in India witnessed PE and VC investments had crossed USD main contributors to the decline was the
a strong bull-run in the three-year period 25 billion in value, reaching USD 25.8 slowdown in the angel/seed and other
from 2013 to 2015. The number of billion. This period was punctuated by a venture capital investment activity as the
investments nearly doubled from 1,186 in host of factors including the election of a sense of valuations being ahead of reality
2013 to 2,052 in 2015, growing at a CAGR new reform-focused government in India caught up with the investment community.
of 33 percent1. The years 2012 and 2013 and also improvement in the overall global There were also multiple instances of
saw private equity and venture capital economic environment. ventures, particularly in the consumer
technology space, shutting down or merging
with competitors. Venture capital (angel,
seed and VC) investments dropped by a
PE / VC deals in India (2012 - 2016)
whopping 54 percent in value terms in 2016
as the overall PE and VC investment activity
volume dropped nearly to 2014 levels.
30 2500
Deal Value (USD billion)
2052
25 2000 Further, headwinds in the global economic
1571 environment fueled by events such as
Deal Value
20 1451
1186 1500 the Brexit and suspense related to the
1108
15 US presidential elections caused some
1000 uncertainty in the market. Investors,
10
particularly FIIs (Foreign Institutional
5 500 Investors) parked funds in safer havens to
15.2 14.5 17.5 25.8 19.8 avoid capital erosion in these uncertain
0 0 times.
2012 2013 2014 2015 2016
Value (USD billion) Deal Volume
1
VCC Edge database
16Private Equity: Optimizing the regulatory landscape and exits
On the brighter side, the year 2016 saw Share of control deals in PE (excluding VC) deals
big participation from large global pension
2015 2016
fund managers and sovereign wealth
funds into the India market. Top Canadian
22
pension funds, in particular, stepped 28
up investments in India that have now
topped USD 5 billion in the last two years.2
Others such as Singapore’s GIC, Abu Dhabi
Investment Authority (ADIA) and Malaysia’s
7% 12%
Khazanah Nasional Berhad were also active
deal-makers in 2016.3
This year also saw private equity funds
stepping up the size and scope of their
bets in India. Specifically, in the Private
294 200
Equity space (excluding angel/seed/VC
investments), the share of control deals has
gone up from around 7 percent in 2015 to
Only PE; Deals tagged 'Control' in VCCEdge database
12 percent in 2016. The year 2016 saw 28
control deals out of 228 pure private equity
investments (excluding angel/seed/venture
capital and debt investments). This trend In the broader private equity segment, half of the year witnessed an acceleration
shows promising signs of maturity in the World Bank Group’s International Finance in the investment activity, showing signs
market and indicates the evolving nature of Corporation (IFC) topped the list with six of revival as the year ended on a positive
the private equity landscape in India. deals, followed by IDFC Alternatives with note. The period from July to December
five deals. TPG Capital and PremjiInvest 2016 accounted for nearly 60 percent of
Major investors were also active during the year, closing investments in the year in value terms,
In the angel/seed segment, Indian Angel four deals each. Prem Watsa’s Fairfax India driven mainly by some large deals towards
Network topped the list with 23 deals. Holdings also ramped up its investment the end of the year. The fourth quarter
It was followed by Blume Ventures and activity in 2016, closing four investments.5 (October to December 2016) was also
Singapore Angel Network Pte Limited with the only quarter in the year that posed a
11 and 10 deals, respectively. The venture Recent trends year-on-year growth in deal activity over
capital segment saw Sequoia Capital A look at the trends in deal activity in the same period in the last year (October to
maintain its leadership position with 31 further detail, particularly in the last December 2015).
deals in 2016. Other notable VC investors two quarters of 2016, is an indicator
included Accel India (26 deals), Omidyar of promising signs of green shoots of Another notable trend has been the fact
Network India (16 deals), IDG Ventures recovery after four successive quarters that average deal ticket sizes are getting
(15 deals) and Blume Ventures (13 deals).4 of drop (from the third quarter of 2015 slightly bigger, partly due to a more sluggish
to the third quarter of 2016). The second early seed and venture stage deal market.
Angel/Seed Venture capital Private equity
(# of deals 2016) (# of deals 2016) (# of deals 2016)
Indian Angel Network 23 Sequoia Capital 31 IFC 6
Blume Venture 11 Accel India 26 IDFC Alternatives 5
Singapore Angel Network 10 Omidyar Network 16 TPG Capital 4
Global Super Angels Forum 9 IDG Ventures 15 PremjiInvest 4
The Chennai Angels 9 Blume Venture 13 Fairfax India Holdings 4
2
‘Canadian fund step up investment in India’ Livemint, October 2016
3
‘Sovereign wealth funds’ India holdings at a record high’ Livemint, July 2016; ‘Abu Dhabi Sovereign Fund ADIA eyes $200 million investment in Greenko’ Economic
Times, May 2016; ‘Singapore snaps up 17 merger and acquisition deals in India’ Indian Express, July 2016
4
Annual Deal Report – 2017, VCCEdge
5
Annual Deal Report – 2017, VCCEdge
17Private Equity: Optimizing the regulatory landscape and exits
PE Quarterly Trend Chart (2012 - 2016)
600
9 537 538
Deal Value (number of deals)
512 465
8 473 500
Deal Value (USD billion)
7 367
381 389 368 392 338 400
6
328 331 349 332
5 278 248 279
241 300
4 222
3 200
2
100
1 6.2 2.5 3.1 3.4 3.6 4.1 3.8 2.9 3.3 5.2 3.7 5.3 5.4 7.7 7.1 5.6 5.1 3.5 5.6 5.6
0 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2012 2013 2014 2015 2016
Deal Value (USD billion) Deal Volume
Private Equity Exits Interestingly, while the number of private For private equity and venture capital
Overview equity and venture capital exits has been exits, there are two strategic exit decisions
on a gradual decline dropping from 309 taken into consideration—the timing and
Private Equity and Venture Capital firms exits in 2014 to 297 in 2015, and then 239 the exit channel. The key external factors
managed to clock exits worth USD 6.8 in 2016, the deal exit value has moved in that determine the timing and channel for
billion across 239 exits in 2016. While there the opposite direction. This is an indicator an exit include the prevailing economic
was a 19.5 percent decline in number of of the fact that exits are getting bigger in conditions, the phase of the economic
deals as compared to last year, the deal the industry. cycle and the perception of valuations
value saw an increase of 17.2 percent.6 The in the markets. As such, some of the
all-time high in recent history was USD 6.8 indicators that have a bearing on the
billion that was achieved last year in 2016. choice of exit, the timing and the return
multiple are the ease of doing M&A deals,
PE / VC Exits in India (2014 - 2016) the general level of valuations as indicated
by the capital markets and the vibrancy of
the IPO markets.
8 350
309 297 The year in review saw 27 IPOs hitting
7 239 300
the Indian capital markets with the total
6
Deal Value (USD billion)
amount raised reaching a six-year high of
250
5 INR 223 billion (highest between 2011 and
200 2016).7 2016 also marked the largest IPO
Deal Value
4 issuance in six years. Private insurance,
150 ICICI Prudential Life Insurance’s USD 910
3
million (or INR 6.1 billion) IPO was the
2 100
biggest in India’s capital markets since
1 50 the IPO of Coal India in November 2010.8
5.2 5.8 6.8 These were healthy signs for India’s IPO
0 0 market that had seen very low activity in
2014 2015 2016
the period from 2011 to 2014. In fact, at
66, the number of IPOs in 2010 was almost
Deal Value (USD billion) Deal Volume equal to the cumulative number of IPOs in
the four-year period from 2011 to 2014 (at
65 IPOs).
6
VCCEdge database
7
‘Year Wise List of IPO's - Report of Public Issues in India Stock Market’ www.Chittorgarh.com accessed in April 2017
8
‘Investors pile on biggest India IPO in six years as ICICI Pru issue oversubscribed 9.5 times’, September 2016
18Private Equity: Optimizing the regulatory landscape and exits
India IPO market (# of IPOs and amount raised)
400 339 364 120
350 108
100
300
223 80
250
183 193 66
200 60
150
39 40 114 40
100 68
60
22 27 20
50 12 21
13
13 7
0 5 0
Amount raised (USD billion) # of IPOs
Indian capital markets continue to be Since 2005, India’s capital markets have valuation levels into their investment
perceived to be more expensive compared consistently operated at a premium hypothesis but expect better profitability
to peers such as China (Hong Kong) or over the broader emerging market and earnings growth from their investee
other emerging market indices (such as indices (Morgan Stanley Composite companies.
the Morgan Stanley Composite Index for Index—Emerging Markets). While the
Emerging Markets).9 While the capital Price-to-earnings (P/E) ratios dropped in In early 2017, while the BSE Sensex was
market indices have grown at a CAGR of 8 the aftermath of the global financial crisis trading at a price-to-earnings ratio of 21.1
percent from January 2014 to January 2017, in 2008, there was a quick recovery. But, times, the broader MSCI Emerging markets
corporate earnings have not been able to the recovery after the 2011 dip has been index was trading at 16.1 times and the
catch up with the expectations.10 Though slow, and over the years, Indian markets Hang Seng in Hong Kong was trading at 12.8
this is a deterrent for funds to invest, it also have continued to widen the premium-gap times.11 Since 2009, Indian markets have
promises higher exit returns to existing compared with other emerging markets. maintained a premium of 3-4x over the
investors. To some extent, investors have built these benchmark index for emerging markets.
Price-to-earnings ratio trend (SENSEX vs. key indices)
30.0
25.0
21.0
20.0
16.1
15.0
12.8
10.0
5.0
0.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
MSCI Emergin Markets Hang Seng (HK) SENSEX (India)
9
Bloomberg, 2017
10
Google Finance, accessed in April 2017
11
Bloomberg, 2017
19Private Equity: Optimizing the regulatory landscape and exits
Fluctuations and long-term directional For example, if a fund had invested in a
movements in exchange rates, i.e., company in January 2012 and exited the
weakening of the rupee against the dollar, investment at a local currency rate of
blunt the dollar-denominated or dollar- return of 25 percent in January 2017, the
based returns. Over the last seven years, equivalent USD based rate of return would
the value of 1 USD has gone up from INR have been much lower at 17 percent—a
46 in 2010 to INR 64 as of April 2017.12 The drop of eight percentage points. This is a
continuous weakening of the rupee has an challenge particularly for investments done
impact on the dollar-based returns for any prior to January 2014.
potential exits for a private equity fund.
INR-USD exchange rate (1 USD = INR)
75
70 66
62 64
62
65
60 54
55 53
50 46 46
45
40
Jan 10
May 10
Sep 10
Jan 11
May 11
Sep 11
Jan 12
May 12
Sep 12
Jan 13
May 13
Sep 13
Jan 14
May 14
Sep 14
Jan 15
May 15
Sep 15
Jan 16
May 16
Sep 16
Jan 17
1 USD = INR Linear (1 USD = INR)
Between January 2011 and January 2014,
the rupee depreciated by 37 percent, while
between January 2014 and January 2017,
it depreciated by 8 percent. Hence, for
investments done post-January 2014, the
extent of impact of the rupee weakening
is lower. More specifically, the rupee has
been range-bound over the last eighteen
months. This lends some level of comfort to
private equity and venture capital funds that
have invested in the last two years, and are
preparing for potential exits.
12
www.Investing.com accessed in April 2017
20Private Equity: Optimizing the regulatory landscape and exits
Exits by sectors The IT/ITeS sector has seen a marginal
In terms of sector favorites, the financial increase in the number of exits between
services sector topped the exits with 56 2014 and 2016, which stood at 52 and 55,
exits amounting to USD 1.7 billion in 2016, respectively, imputing a 6 percent increase
followed by Information technology (IT) since 2014. However, 2015 witnessed 61
which stood at 55 exit deals at USD 1.3 exits implying a 17 percent increase in the
billion. Consumer discretionary, industrials number of exits from 2014. The 55 deals in
and healthcare were the other three key 2016 thereafter would impute a 9.8 percent
sectors that contributed to the exit activity decline in the number of exits in 2015.
with 39, 35 and 25 exit deals, respectively.
Interestingly, consumer discretionary which The consumer discretionary sector saw a
had only 39 exit deals as compared to continued decline in the number of exits
IT—which had 55 exit deals—clocked exits from 63 exits in 2014 to 43 exits in 2015
worth USD 1.4 billion. Early stage investors and 39 exits in 2016, implying a 38 percent
continued to put seed and growth decline from 2014 to 2016. The industrials
capital into companies in the consumer space also witnessed a continued decline
technology space.13 in the number of exits from 58 exits in 2014
to 51 exits in 2015 and 35 exits in 2016,
Financials, IT, Consumer Discretionary, which would attribute to a 40% decline in
Industrials and Healthcare accounted for number of exit deals from 2014 to 2016.
88 percent of the exits in the year 2016.
However, two of these five sectors— The healthcare space witnessed a
industrials and financials—saw a sharp fall significant increase in the number of exit
in exit activity dropping by 31 percent and deals from 16 exits in 2014 to 23 exits
22 percent over 2015, respectively. in 2015, implying a 44 percent growth,
followed by 25 exits in 2016, imputing 9
The financial services sector saw a percent increase from 2015. The sector
5 percent decrease in the number of noticed a 56 percent increase in the
exits from 76 in 2014 to 72 in 2015. number of exits from 2014 to 2016.
Subsequently these exits declined by 22
percent to 56 exits in 2016, imputing a
decrease of 26 percent from the number of
exits in 2014.
PE Exits by Sector (2014 - 2016)
80
70
60
50
40
30
20
10
0
Financials IT Consumer Industri- Health- Consumer Materials Utilities Telecom Energy
Discre- als care Staples
tionary
2014 76 52 63 58 16 14 13 7 7 3
2015 72 61 43 51 23 17 18 7 5 0
2016 56 55 39 35 25 12 9 4 2 2
13
VCCEdge database
21Private Equity: Optimizing the regulatory landscape and exits
Consumer staples saw a marginal decline witnessed 18 exits in the materials space in 2014, 5 exits in 2015 and 2 exits in 2016,
from 14 exit deals in 2014 to 12 exit deals leading to 39 percent growth from 2014 to implying a 71 percent decline from 2014
in 2016, which would be a 14% decline from 2015 and a 50 percent decline from 2015 to 2016. The energy sector witnessed a
2014 to 2016. However, 2015 witnessed to 2016. marginal decline of 33 percent from 2014
17 exit-transactions, which would imply a to 2016. The energy sector saw 3 exit deals
21 percent increase from the number of The utilities space remained constant in 2014, none in 2015 and 2 exit deals in
exits in 2014. The materials space also saw from 2014 to 2015 with 7 exits and decline 2016.
a decline in number of exits from 13 exits in 2016 to 4 exits, implying a 43 percent
in 2014 to 9 exits in 2016—a 31 percent decline. The telecom space also continued Some of the large exit deals of the top five
decline from 2014 to 2016. However, 2015 to decline from 2014 to 2016 with 7 exits sectors from 2014 to 2016 include:
Financials
Date Target Buyer Seller Exit Type Stake (%) Deal
Value
(USD mn)
07-May-15 Shriram City Apax TPG Capital Inc. Secondary Sale 20.37 384.55
Union Finance Partners
Ltd. LLP
16-Oct-15 Equitas Holdings Aavishkaar Goodwell India Microfinance Initial Public 34.92 224.41
Ltd. Development Co. Ltd., India Financial Offering
Inclusion Fund, MicroVentures SPA,
ARIA Investment Partners III LP, Sequoia
Capital India III LP, WestBridge Ventures II
LLC, Aquarius Investment Advisors India
Pvt. Ltd., Helion Venture Partners II LLC,
International Finance Corp., Netherlands
Development Finance Co., Creation
Investments Capital Management LLC,
Sarva Capital LLC
26-Oct-16 Lodha Group, HDFC Property Fund M&A 224.27
World One
28-Apr-15 Canaan JP Morgan Canaan Advisors Pvt. Ltd. Secondary Sale 100 200
Advisors Pvt. Partners
Ltd., Domestic
Portfolio
01-Jan-15 Mahindra Cartica Capital LLC Open Market 7.85 188.48
and Mahindra
Financial Services
Ltd.
02-Sep-16 Cholamandalam Apax Partners LLP, Apax VIII- A L.P. Open Market 7.14 173.55
Investment and
Finance Company
Ltd.
01-Oct-16 IDFC Bank Ltd. Khazanah Nasional Berhad Open Market 4.15 150.85
22Private Equity: Optimizing the regulatory landscape and exits
IT
Date Target Buyer Seller Exit Type Stake Deal
(%) Value
(USD mn)
18-Aug-16 Bharti Telecom Singapore Temasek Holdings Advisors India Pvt. M&A 7.39 657
Ltd. Telecommunications Ltd.
Ltd.
11-Jul-16 Minacs Pvt. Ltd. Synnex Corporation Capital Square Partners Pte. Ltd, CX M&A 100 420
Capital Management Ltd.
01-Jan-14 HCL Technologies ChrysCapital Investment Advisors Open Market 1.67 287
Ltd. India Pvt. Ltd.
19-Jan-16 Amber Goldman Sachs Reliance Alternative Investments Fund Secondary 34 175
Enterprises India Group Inc. Private Equity Scheme I Sale
Pvt. Ltd.
Consumer Discretionary
Date Target Buyer Seller Exit Type Stake Deal
(%) Value
(USD mn)
07-Nov-14 Hero MotoCorp Bain Capital LLC Open Market 4.28 400.24
Ltd.
19-May-14 Myntra Designs Flipkart Pvt. Ltd., IndoUS Venture Partners I LLC, Accel M&A 6.42 285.62
Pvt. Ltd. Flipkart India Pvt. Ltd. India Venture Fund, IDG Ventures India
Fund, Sofina Societe, PI Opportunities
Fund I, Accel India Venture Fund II LP,
Tiger Global Management LLC
12-Jun-14 Hero MotoCorp Bain Capital LLC Open Market 2.81 249.81
Ltd.
10-Apr-15 Dish TV India Ltd. Apollo Management LP Open Market 11 184.22
01-Apr-16 Hero MotoCorp GIC Pte. Ltd. Open Market 1.56 147.78
Ltd.
05-Jul-16 Endurance Actis Advisers Pvt. Ltd. Initial Public 13.72 135.29
Technologies Ltd. Offering
26-Nov-15 Hero MotoCorp Bain Capital LLC Open Market 1.49 116.68
Ltd.
23Private Equity: Optimizing the regulatory landscape and exits
Industrials
Date Target Buyer Seller Exit Type Stake Deal
(%) Value
(USD mn)
14-May-14 Mahindra and Goldman Sachs (Principal Open Market 3.02 356.26
Mahindra Ltd. Investments)
22-Dec-16 International Yanmar Company Blackstone Advisors India Pvt. Ltd. M&A 17.75 235.48
Tractors Ltd. Ltd.
22-Jan-15 Agile Electric Sub Mape Advisory Blackstone Advisors India Pvt. Ltd. Secondary 97.9 106.4
Assembly Pvt. Group Pvt. Ltd., Sale
Ltd. Igarashi Electric
Works Ltd., Tata
Capital Growth Fund
01-Jul-15 Mahindra and Temasek Holdings Advisors India Pvt. Open Market 0.82 101.39
Mahindra Ltd. Ltd.
Healthcare
Date Target Buyer Seller Exit Type Stake Deal
(%) Value
(USD mn)
28-Jul-16 Gland Pharma Shanghai Fosun KKR India Advisors Pvt. Ltd., Gland M&A 38.41 576.55
Ltd. Pharmaceutical Celsus Bio Chemicals Pvt. Ltd.
Group Co. Ltd.
12-Jan-16 Quality Care India Abraaj Capital Ltd. Advent International Corp. Secondary 65.59 189.14
Ltd. Sale
19-Aug-16 Laurus Labs Ltd. Aptuit Inc., Eight Roads Ventures, Initial Public 22.8 154.21
Warburg Pincus India Pvt. Ltd. Offering
06-May-15 Mankind Pharma Capital International ChrysCapital IV LLC Secondary 10.77 179.6
Ltd. Inc. Sale
22-Aug-14 Intas Temasek Holdings ChrysCapital III LLC Secondary 10.16 154.6
Pharmaceuticals Advisors India Pvt. Sale
Ltd. Ltd.
24Private Equity: Optimizing the regulatory landscape and exits
Exit routes PE Exits by Exit mode
Over the last three years, there has been
a dramatic shift in terms of the routes 100%
taken by PE/VC funds as they exited their 90% 12% 297
15% 15%
investments. While the share of buybacks 80%
and IPOs as exit routes has changed 70%
marginally, there has been a significant 41% 32%
60% 52%
change in the share of M&A as an exit
route. Such exits have been driven by 50%
strategic acquisitions—both organic and 40%
inorganic—that have happened across 30% 29% 43%
sectors. 20%
20%
4% 4%
Buybacks, as a category, dropped from 10% 13% 6%
11%
0 5%
41 exits in 2014 to 33 in 2015, and 2014 2015 2016
subsequently only 12 in 2016, implying
a 64 percent decline from 2015 to 2016.
Buyback IPO M&A Open Market Secondary Market
The share of buybacks has more than
halved from 13 percent in 2014 to around 5
percent in 2016.14
Exits made through IPOs increased
marginally in terms of the number of
transactions between 2014 and 2016. The
number of exits through the IPO route M&As accounting for number of PE / VC exits
increased from 11, in 2014, to 12, in 2015,
and subsequently 14, in 2016, thus implying
an increase of around 17 percent in the 45.0% 42.7%
final year. Secondary sales, on the other 40.0%
hand, remained constant in terms of the
number of exit transactions between 2014 35.0%
29.0%
and 2016 (from 36 exits in 2014 to 35 exits 30.0%
in 2016), while there was a jump to 44 exits 25.0%
in 2015. 20.1%
20.0%
The number of exit transaction through 15.0%
M&A has seen an increase of around 65
10.0%
percent from 62 exits in 2014 to 102 exits in
2016, whereas the number of open market 5.0%
transactions has decreased year on year, 0
2014 2015 2016
from 159 in 2014 to 122 in 2015, and 76 in
2016, thus implying a 52 percent decline
from 2014 to 2016.
Exit through M&As
The exit to strategic investors through 2014 2015 2016
M&A is rapidly emerging as the favorite 62 exits 86 exits 102 exits
route for private equity and venture
capital funds. In 2016, over one-third of all
PE exits were through the M&A route. The
share of M&As in PE and VC exits has gone
up from 20 percent in 2014 to 29 percent
14
VCCEdge database
25Private Equity: Optimizing the regulatory landscape and exits
in 2015, and 43 percent in 2016. The rapid purchased the KKR-backed Alliance Tire The broader M&A market also witnessed
rise in the share of M&As in PE/VC exits Group, for USD 1.2 billion. KKR (along strong M&A activity. A key driver for M&A
bears testimony to the growing M&A with Gland Celsus) sold a 38 percent deals was the rise in both domestic and
activity in India. With many foreign MNCs stake in Gland Pharma to Shanghai Fosun inbound investment activity by strategic
pursuing the inorganic route for entering Pharmaceutical for USD 577 million. investors. In some sectors, consolidation
India, M&A activity has been on the rise in was also a theme that drove M&A activity.
the recent past. Other large private equity exits done The year 2017 has also started with
through the M&A route included Temasek’s significant activity in the M&A market.
The year 2016 witnessed many big-ticket sale of a 7.4 percent stake in Bharti Recent examples include: the Vodafone
M&A transactions in which PE funds Telecom to Singapore Telecommunications Idea merger in the telecom space,15 and
cashed in on their investments. The private for USD 657 million and Capital Square and rumors around the Kotak Mahindra Bank
equity giant KKR, in particular, exited from CD Capital’s sale of 100 percent stake in the and Axis Bank in the financial services
two of its large investments by selling out IT sector company Minacs Private Limited sector.16
to strategic investors. Japan’s Yokohoma to Synnex Corporation for USD 420 million.
Date Target Buyer Seller Industry Exit Stake (%) Deal
Type Value
(USD mn)
Mar-16 Alliance Tire Yokohama Rubber KKR India Advisors Pvt. Automotive M&A 100 1,179
Group B.V. Co. Ltd. Ltd.
Aug-16 Bharti Telecom Singapore Temasek Holdings Telecom M&A 7.39 657
Ltd Telecommunications
Ltd.
Jul-16 Gland Pharma Ltd Shaghai Fosun KKR India, Gland Celsus Life Sciences M&A 38.41 577
Pharmaceutical and
Healthcare
Jul-16 Minacs Pvt. Ltd. Synnex Corporation Capital Square, CX Capital IT Services M&A 100 420
Dec-16 International Yanmar Company Blackstone Advisors India Industrials M&A 17.75 235
Tractors Ltd. Ltd. Pvt. Ltd.
Oct-16 Lodha Group, NA HDFC Property Fund Real Estate M&A NA 224
World One
‘Vodafone, Idea likely to seal merger pact within a month’, Economic Times, February 2017
15
‘Kotak Mahindra, Axis Bank shares rise on merger rumours’, Livemint, February 2017
16
26Private Equity: Optimizing the regulatory landscape and exits
Exit through IPOs of IPO exits to total PE and VC exits in the IPO issuances triple from seven in 2014 to
The IPO market in India continued on its year increased marginally from 4 percent 21 in 2015. Moreover, the amount of money
path of revival as the year saw 27 IPOs in 2015 to 6 percent in 2016. The year raised had grown nearly tenfold between
raising the highest amount from capital 2015 had also seen a marginal increase 2014 and 2015, from INR 12 billion to INR
markets in the last six years. However, in the share of IPOs to private equity and 114 billion.
the IPO route for exits was not the most venture capital exits from 3.6 percent in
preferred route for private equity and 2014. In the same period, the broader IPO Nevertheless, there were some marquee
venture capital investors. In fact, the share market in India had seen the number of exits by private equity investors in the form
of IPOs. One of the notable exits was the
USD 325 million IPO of Equitas Holdings,
Share of IPOs in PE/VC exits (#)
the Small Finance Bank license holder non-
banking financial services company (NBFC),
in April 2016. More than ten private equity
and venture capital investors, including
7.5% World Bank’s International Finance
Corporation (IFC), Sequoia Capital and
5.9%
CLSA Capital, exited with a reported exit
value amounting to USD 217 million.
5.0%
4.0%
3.6%
2.5%
0
2014 2015 2016
Company 18 IPO issue size PE/VC funds to exit
Equitas Holdings USD 336 million IFC, Sequoia Capital, CLSA Capital
Laurus Labs USD 205 million Aptuit, Eight Road Ventures, Warburg
Pincus
RBL Bank USD 179 million Beacon India, Gaja Capital, Capvent,
Elephant Capital Fund
Endurance Technologies USD 178 million Actis Advisors
Varun Beverages USD 153 million Standard Chartered PE, Aion Capital
Ujjivan Financial Services USD 133 million Unitus Equity, Wolfensohn Capital, Indian
Financial Inclusion Fund
Parag Milk Foods USD 111 million IDFC Private Equity
Healthcare Global Enterprises USD 102 million Premji Invest, Temasek
CL Educate USD 36 million Gaja Capital, Granite Hill India
Opportunities Fund
Seaways Shipping and Logistics USD 12 million IDFC Private Equity
17
‘NSE public offer may see largest PE exit’, Business Standard, August 2016
18
‘As IPO market booms in India, 2016 set to be record year for private equity players exits’, Financial Express, August 2016
27Private Equity: Optimizing the regulatory landscape and exits
Exit through open market and 56 percent in 2015, and now 46 percent in Some notable open market exits by private
secondary sale 2016. While the share of secondary sales equity funds included:
Secondary sales and open market has largely remained constant (marginal
•• Providence selling its 3.47% stake in Idea
transactions accounted for 46 percent of increase in share), the drop in their
Cellular for USD 205 million.
the private equity and venture capital exits cumulative share can be entirely attributed
in 2016. This share has been coming down to the drop in open market exits. •• Advent International selling its 65.59%
sequentially from 63 percent in 2014 to stake in Quality Care India Ltd. to Abraaj
Capital for USD 189 million.
Share of open market and secondary sales in PE/VC exits (#) •• Reliance Capital selling its 34% stake in
Amber Enterprises India, manufacturer
70% of electronic components, to Goldman
Sachs Group Inc. for USD 175 million.
60%
12%
Even the start of 2017 saw the likes of
50% 15%
Providence Equity Partners, Khazanah
40% 15% Nasional Berhad, Carlyle Asia and Norwest
Venture Partners, amongst others exiting
30% investments through open market
52%
transactions valued at more than USD 100
20% 41% million, each.19
32%
10%
0
2014 2015 2016
Open Market Secondary Sale
Date Target Buyer Seller Industry Exit Type Stake (%) Deal
Value
(USD mn)
Jun-16 Idea Cellular Ltd. Providence Equity Telecom Open 3.47 205
Partners LLC Market
Jan-16 Quality Care India Abraaj Capital Advent International Life Sciences Secondary 65.59 189
Ltd. Ltd. Corp. and Sale
Healthcare
Jan-16 Amber Goldman Sachs Reliance Alternative Manufacturing Secondary 34 175
Enterprises India Group Inc. Investments Fund Private Sale
Pvt. Ltd. Equity Scheme I
Sep-16 Cholamandalam Apax Partners LLP, Apax Financial Open 7.14 174
Investment and VIII- A L.P. Services Market
Finance Company
Ltd.
Oct-16 IDFC Bank Ltd. Khazanah Nasional Financial Open 4.15 150
Berhad Services Market
Apr-16 Hero MotoCorp GIC Pte. Ltd. Automotive Open 1.56 148
Ltd. Market
Jan-16 Marico Ltd. Arisaig Asia Consumer Consumer Open 1.91 84
Fund Market
19
VCCEdge database
28Private Equity: Optimizing the regulatory landscape and exits
Exit through buybacks While the number of buybacks was low, Outlook
From being the third most common exit there have been some notable buybacks PE/VC investments
route for private equity funds in 2014 (41 in 2017. The consumer products company, Since the beginning of this millennium,
promoter buybacks) after open market CavinKare, bought back a stake held by private equity and venture capital funds
transactions and M&As, buybacks were the ChrysCapital at around USD 78 million. have invested over USD 150 billion in India
least popular exit route, followed by private The real estate company, Indiabulls and have been a part of India’s growth
equity and venture capital investors, in Infrastructure Private Limited, bought story from early-2000s to 2016.21 Private
2016. In terms of the share of buybacks to back a 74 percent held by Farallon Capital equity and venture capital investors have
total PE/VC exits, it has more than halved Management, in a deal valued at USD 56 played a pivotal role in the private and
from 13.3 percent in 2014 to just 5 percent million.20 entrepreneurial businesses segment,
in 2016. In absolute terms, the number of equipping companies with the much-
exits through buybacks was 12 in 2016. needed capital for growth and expansion.
And the PE/VC investor community will
continue to be essential to India’s story
Share of buybacks in PE/VC exits (#) as India embarks on a renewed growth
journey.
14.0% 13.3%
With the headwinds of policy paralysis,
12.0% coalition government, forced logjams and
11.1%
delay of reforms having weathered down,
10.0% India appears to be on a path towards
a period of robust economic growth.
8.0% Key agencies such as the International
Monetary Fund (IMF) and the Asian
6.0% Development Bank (ADB) have forecasted
5.0%
India to become the fastest-growing major
4.0% economy in the world in the years to
come.22 India is expected to achieve an
2.0% annual GDP growth rate of over 8 percent
in the next few years. Thus, the macro-
0 environment is favorable for deal activity
2014 2015 2016 and also offers ample opportunities to
investors to exit with handsome returns.
Date Target Buyer Seller Industry Exit Type Stake (%) Deal
Value
(USD mn)
Mar-17 Cavinkare Pvt. Cavinkare Pvt. ChrysCapital VI LLC Consumer Buyback NA 78.72
Ltd. Ltd.
Jan-17 Indiabulls Indiabulls Real Farallon Capital Real Estate Buyback 74% 55.6
Infrastructure Estate Ltd. Management LLC
Pvt. Ltd.
20
VCCEdge database
21
VCCEdge database
22
‘Steady reforms fuel India’s GDP growth: Asian Development Bank Report’ Indian Express, April 2017
29Private Equity: Optimizing the regulatory landscape and exits
The market barometers—the BSE’s Sensex Thematic funds such as the Brookfield-SBI funds focused on India, the year 2017 could
and the NSE’s Nifty50—have both climbed Stressed asset JV (USD 1.04 billion fund) see a significant deployment of capital, and
over 12 percent in the year till date (January and the proposed Piramal-Bain Capital result in a rise in deal activity.
to March 2017). As of early April 2017, platform are expected to focus on specific
both the indices have scaled all-time high opportunities in asset reconstruction.25 Outlook for PE exits
levels of 29,700 points and 9,200 points, Similarly, several sector-focused platforms Even though private equity and venture
respectively.23 such as the KKR-CA Media fund (USD 300 capital funds have done exits worth over
million Asia fund) are expected to drive USD 17 billion cumulatively in the last
The year 2016 ended on a stronger note deal activities across target sectors. three years (2014 to 2016), along with the
with indications in the last two quarters first three months of 2017 having already
that private equity investment activity Private equity buyout is another deal yielded over USD 750 million worth of
could pick up in the near-term. There theme that is expected to gain traction in exits,27 this is insignificant compared to the
are strong tailwinds that are expected the near future. The year 2016 saw private current investments (based on value of
to boost investment activity. On the one equity funds take big bets on companies investment) held by funds in India.
hand, there are government-led actions in India. Brookfield Asset Management If we look at only large-ticket private equity
such as the implementation of the GST invested USD 1.6 billion in Towercom and venture capital investments (greater
reforms, additional FDI limit relaxation Infrastructure Private Limited. Blackstone than USD 50 million in investment size)
in key sectors (for example, pharma), invested USD 0.8 billion in Mphasis. And, done between 2006 and 2015, then there
focused infrastructure spending, the push AION along with other investors bought GE are investments worth USD 41 billion (at
for digitisation and other micro-reforms Capital Services India for USD 330 million. investment value) across over 300 invested
such as demonetisation driven digitisation This trend is also expected to continue as companies that have either not been exited
(driving fintech, banking sectors). And, 2017 unfolds. yet or just partially exited. This implies a
on the other hand, there are underlying large need as well as opportunity for exits
socioeconomic and demographic changes However, as Indian promoters continue in the near future.
(rapid urbanisation, young demographic, to have high valuation expectations, and
rising consumption). the universe of investible and investment- Within this USD 41 billion worth of un-
grade private companies and assets exited and partially exited investments
Even on the supply side, a number of continues to be small, private equity and pool, there are large ticket investments
private equity institutions have raised fresh venture capital funds are expected to be (greater than USD 50 million) with greater
India-focused funds. It is reported that, cautious in making deals. At the same time, than five years of vintage account for 54
in 2016, the top five private equity and with over USD 7 billion of dry powder26 lying percent of the un-exited or partially exited
venture capital funds alone raised about with private equity and venture capital investment value and 58 percent of such
USD 2.4 billion across their India-dedicated investments by count.
funds.24
PE/VC India-focused fund Amount raised
Sequoia Capital Sequoia Capital India Fund V USD 920 million
Multiples PE Multiples PE Fund II USD 690 million
Accel Accel India V USD 430 million
Oman India JIF First close USD 220 million
Lighthouse India 2020 Fund II USD 138 million
23
Google Finance, accessed in April 2017
24
‘PE and VC firms raised $4.9 billion via India-focused funds in 2016’, Livemint, December 2016
25
‘Piramal Enterprises announces stressed asset investment fund with Bain Capital’, Livemint, August 2016
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