Secondary private equity deals rise 181%

It’s just 6 months into 2010 and secondary deals in the Indian private equity (PE) industry have already surpassed the 2009 figures in terms of deal value. 

Five secondary deals, which involve sale of stake in a company held by a PE firm to another firm, amounting to $225 million were concluded till June.

And the latest acquisition of Swiss Technology Venture Capital
Fund Pvt Ltd’s entire 8.22% stake in Hyderabad-based port services operator Ocean Sparkle by Eredene Capital for $11.1 million now takes the total to 6 deals aggregating $236.1 million.
The increase in the overall secondary deal value is around 181% in 2010 (year to date) as against 6 deals aggregating to $80 million in 2009.

Arun Natarajan, CEO, Venture Intelligence, said, “Though initial public offering (IPO) and strategic sale options created waves in the PE exit space in early 2010, the third best option of secondary sale is gradually picking momentum as well. Conclusion of two deals in the last fortnight indicates that PE firms nearing their fund life are opting for the secondary transactions to monetise their investments.”

A host of PE firms had targeted 2009 for exits but the overall business/market environment did not support the exit theory.

“However, those with redemption pressures had no option but to exit either at a loss or just about recovering their money. In fact, secondary transactions started looking up beginning the last quarter of fiscal 2010 and PE firms are wasting no time in optimising the opportunity,” a top official from a leading PE firm said requesting anonymity.

In April 2010, Bain Capital Advisors Pvt Ltd bought an undisclosed stake in Lilliput Kidswear from Everstone Capital and Sanjeev Narula for around $60 million.

Another secondary transaction saw Carlyle Group fully exit its holding in Financial Software and Systems Pvt Ltd by selling out to New Enterprise Associate (India) Pvt Ltd and Jacob Ballas Capital India Pvt Ltd for $30 million.

Sudheer Kuppam, managing director, Intel Capital, said, “The
overall secondary deal scenario is very active. In fact, our investment Multi Commodity Exchange of India was a secondary deal.” Another trend witnessed was the combination of secondary and primary deals wherein besides acquiring the outgoing PE firm’s stake, there was fresh investment being made by the incoming PE firm.  For instance, India Equity Partners in a combination of secondary and primary deals acquired IL&FS Investment Managers Ltd’s stake in IL&FS Education and Technology Services Ltd for Rs 172 crore.