Despite the slowdown in overall PE-VC investments, secondary sales by private equity (PE) firms more than doubled to ₹87,348 crore in 2023, aided by the macro environment and maturing secondary markets. With the overall euphoria in the industry, the rising trend is expected to continue this year as well.
In comparison, calendar year 2022 recorded a total of ₹41,071 crore through secondary sales by PE firms. A secondary sale is when a PE firm sells its stake to another PE firm, while exits by PEs generally include buyback, secondary sales and strategic sales.
The top three secondary sales in CY23 were exits by BPEA EQT by offloading its stake in Coforge for ₹7,577 crore, Canada Pension Plan Investment Board divesting about 1.7% stake in private lender Kotak Mahindra Bank for ₹6,123 crore and American PE fund Blackstone selling its remaining 20.50% stake in Sona BLW Precision Forgings for ₹4,917 crore, according to data compiled by JM Financial.
According to Sonia Dasgupta, MD & CEO, investment banking at JM Financial: “With stable macro environment in India and maturing secondary markets, the appetite for secondary sales within public market investors has seen an uptick.”
“The overall private equity-venture capital investments in 2023 slowed to ₹2.47 trillion ($30 billion), compared with ₹3.1 trillion ($40 billion) in 2022. However, there are a few sectors which did well such as healthcare and hospitals, where PE/VC funds invested ₹40,000 crore in 2023, compared with Rs 6,500 crore in 2022,” she said.
ESG-aligned assets, which primarily include renewable energy companies, attracted ₹45,000 crore in investments in 2023, compared with ₹20,000 crore in 2022. The other top deals for the year included Bain Capital offloading a 1.1% stake in Axis Bank in December, Chrys Capital divesting stake in Mankind Pharma and US-based PE firm Warburg Pincus offloading stake in Computer Age Management Services (see chart).
According to Mahesh Singhi, founder & MD at investment banking firm Singhi Advisors: “For the last three years, ever since the buoyancy in the capital markets, almost 75% of capital raise has been through secondary sale of equity, offer for sale or block deals of significant sizes, including sell by PE funds and promoters together.”
“Post listing, some companies raised additional capital through the qualified institutional placement route to strengthen their balance sheets. That occurred as most funds were waiting to exit and timed themselves well to gain from attractive markets and rich valuations, which may not last for long,” he added.
A total of 57 firms raised ₹49,434 crore through main-board IPOs in 2023, 17% lower than ₹59,302 crore mobilised through 40 IPOs in 2022, according to Prime Database.
Looking ahead
The trend of secondary sales by PEs will continue in 2024, too, riding on the back of a buoyant economy, overall market euphoria and a healthy pipeline of IPOs.
“We expect the trend to continue in 2024 across secondary sales as PE-backed companies are coming up for IPOs. In 2024, along with healthcare, we anticipate increased traction among investors for traditional sectors like financial services and industrials as the focus shifts to profit making companies,” JM Financial’s Dasgupta said.
Other industry experts mirrored the sentiment, adding that most of the industries – such as infrastructure, hotels, travel and tourism and logistics – are on the rise. PE firms, being in the business of investing and reinvesting, would look at cashing in on this trend.
“These are interesting times where convergence between the traditional brick-and-mortar businesses and new-age tech and startups will be the theme in play. Cash-rich groups will diversify through acquisitions and buyout funds will remain quite active in buy and bolt-on acquisitions,” Singhi said.
