The Year That Was: Record $6.5 billion in exits for private equity

A record $6.5 billion exit, with latest being Reckitt Benckiser Group acquiring Paras Pharmaceuticals, was the highlight of the private equity scene in 2010. Longer term, there are demands for transparency and stringent due diligence

 In a business that typically takes five to seven years for investors (Limited Partners or LP) to reap returns on their investments, 2010 turned out to be a record year for private equity (PE) exits.

The latest PE exit was Actis and Sequoia Capital selling their share (totalling over $500 million) in Paras Pharmaceuticals along with the share of the company's founder Girish Patel and his family, to Reckitt Benckiser Group for about $726 million.

Some of the other big exits were ChrysCapital's stake sales in Infosys and Mahindra & Mahindra Financial Services, Sequoia's sale of holdings in Mannapuram and SKS Microfinance and ICICI Venture's holding in VA Tech Wabag and RFCL. The promoters of Patni Computer Systems along with private equity firm General Atlantic are close to selling their stake to a PE-backed suitor.

In 2010, PE deals in real estate companies totalled $1,182 million, compared to $606 million in the previous year. More than 20% of the total PE deals were in the electrical utility or power plants, including renewable energy assets. Out of the total $8.2 billion invested, $1.67 billion was in the power sector.

A consortium of global investors led by Morgan Stanley Infrastructure Partners (MSIP), General Atlantic LLC (GA), Goldman Sachs Investment Management, Norwest Venture Partners (NVP), Everstone Capital and others invested $425 million in energy firm Asian Genco Pte Ltd. GVK Energy, a subsidiary of GVK Power & Infrastructure, raised about $157 million from PE Actis and the Government of Singapore Investment Corporation (GIC). The deal comes after 3i Group invested nearly $180 million in the firm last month.

The sectors that are currently drawing significant interest from PE investors are pharmaceuticals, real estate, finance, education, cleantech, infrastructure, healthcare and some such other untapped sectors. Distribution of financial products, one of the hot areas of 2007, is all but dead. Apnapaisa.com was backed by Sequoia capital, Fundsindia.com is funded by Inventus Capital Partners and Rupeetalk which had early-stage investor Seedfund, was acquired by Noida-based financial services distribution company NetAmbit.
According to Jairaj Purandare of PricewaterhouseCoopers (PwC) India, "Private Equity investment in India between 2004 and 2009 was as high as $40 billion. It is expected to be $70 billion between 2010 to 2013, of which $10 billion will be in venture capital (VC)."

Early stage investments showed some exits this year.  Billionaire venture capitalist and co-founder of Sun Microsystems Vinod Khosla, who was one of the early investors in SKS Microfinance gained $117 million from the company's recent listing. Some other profitable investments were InMobi by Mumbai Angels, Mango Technologies by Ojas Venture Partners, Metahelix by Nadathur Holdings and Carwale by Seedfund.

PE investors around the world are closely watching the Vodafone tax case. Following the Bombay High court's directions, the Income-Tax Department has demanded Rs11,297.95 crore from Vodafone towards tax and interest for the company's overseas acquisition of Hutch. Now, a growing number of overseas PE investors are buying tax-liability insurance covers, which provide protection from uncertainty in tax laws. This trend is prevalent in the West, but is new in India.

During this year, several PE experts set up their own ventures. Former head of Citigroup Venture Capital International (CVCI) Ajay Relan raised $515 million for his initiative CX Partners. Renuka Ramnath, ex-ICICI Venture, raised $250 million for her own PE venture, Multiples Alternate Asset Management. Jayanta Banerjee, another ex-ICICI Venture director, floated a $200 million PE fund Pravi Capital.

The domestic realty PE industry went through major consolidation in 2010. Saffron Asset Advisors was acquired by IL&FS investment managers. Religare Enterprises is reported to be close to buying 85% of the Ajay Piramal Group-promoted real estate fund Indiareit Fund Advisors.

The global financial crisis has had an impact on private equity investments with demands on private equity firms (General Partners or GP) for greater transparency, stringent due diligence, sector-specific investments as well as a shortened time frame of an average five to seven years for exiting the investment.

According to Anubha Shrivastava, managing director, Asia, for CDC Group plc, "The world has changed after the crisis. Investors today are hesitant to make blind pool investments. They want industry-specific investment." This is one reason why a host of funds which have announced fund-raising plans, have not achieved a first close till now.

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