PE-VC exit deal value hits a two-year high in April

The cumulative value of private equity (PE) and venture capital (VC) exits from Indian companies in April is the highest in the last two years.

According to data from Venture Intelligence, a firm that tracks private companies’ investments, financials and valuations, the value of the exit deals surged to $9870 million in April, for a total of 18 exit deals.

Sandeep Mishra, Vice-President, Research and Investments, Zephyr Peacock India, said PE-VC exits have been picking up since late 2020 and this momentum was carried forward in April.

That apart, April saw few large ticket size exits getting executed such as Hitachi acquiring GlobalLogic, Tata Digital acquiring BigBasket, and these deals have made April an outlier in PE-VC exits, Mishra added.

The tech economy reached an inflection point during 2020 and has been rapidly expanding from then on; there have been over 15 unicorns over the last 12 months and this has led to an M&A and a pre-IPO frenzy of sorts in the PE-VC space, said Anup Jain, Managing Partner, Orios Venture Partners, adding that the space is now attracting attention from public market retail investors and this has set off a liquidity rush where many large start-ups are proposing to approach public listings and also acquire majority stakes in companies.

Improvement in exits

The value of exits has been improving since February, after a dip in January. The cumulative value of the deals slipped to $860 million for eight exits in January from $1365 million for 21 exits in December last year. But, in February, it climbed again to $1,466 million for 24 exits and further to $2264 million for 28 exits in March.

“The overall exit scenario is also improving in India as the ecosystem matures. We are seeing increased activity from both foreign and domestic funds as well as family offices in India’s start-up ecosystem in both early and growth stages. This, combined with the increased potential for IPOs and other reforms being made for start-up exits, we continue to see the exit activity increase significantly over the next few years. Also, the pandemic has acted as a catalyst for some sectors within the start-up ecosystem, further helping the cause,” said Jatin Desai, Managing Partner, Inflexor Ventures.

“The deal activity slowed down when the first wave of pandemic hit. As the effects of the first wave began to subside around the middle of Q3FY21, things picked up speed again and the pent-up demand for deals and lots of dry gun powder available with funds was put into action,” Desai added.

The value of PE-VC exits fell to as low as $106 million for five deals in April last year, when the first wave of Covid infections was spreading in several pockets of the country. The exit scenario remained dull during the April to August period in 2020, but picked up again in September after new infections started to fall and the economy began to recover.

Wait-and-watch mode

Exits typically take place to give employees, founders, and early investors an opportunity to get some liquidity. PE-VC exit deals normally include exits via open market transactions and mergers and acquisitions. While open market transactions usually constitute public market sales and PE-VC-backed initial public offerings (IPOs), mergers and acquisitions include deals such as buybacks, strategic sales, and secondary sale purchases.

With the second wave of Covid infections surging now, experts said exits could see a dip again in the coming months.

“While the momentum might continue from May to mid-June, we will start seeing a more wait and watch or cautious approach to time the exit, leading to a dip in the numbers in the coming months,” Mishra said, adding that a lot depends on how long it takes for the infections to start getting under control, expectations on the third wave of the pandemic, how the economy recovers post the phase of lockdown, and how markets behave in the meantime.