Lead Story

Buyer’s market

A number of private equity investors are stuck in the middle, struggling to find profitable exits

Illustration by Sahil Bhatia

Too much of a good thing can be bad. Take the case of Indian private equity. The initial boom between 2000 and 2005, which saw stellar fund performance, meant India was no longer the land of snake charmers, but the place to be. Be it Warburg Pincus’ 2005 exit from Bharti Airtel, where the firm made its money six times over, ChrysCapital’s exit from Suzlon, where the firm multiplied its investment 10 times over, or Baring’s exit from Mphasis, where the firm invested ₹48 crore but took home a whopping ₹1,150 crore, making money never looked so easy. Investors and bankers, some of them first-time visitors with little clue about India, came in from as far as Iceland to invest in India. Too much money in the hands of inexperienced managers ensured that the euphoria in the public markets spilled over to the unlisted space, pushing valuations to dizzy levels. “It seemed like this gravy train that you hopped on to, put $1 in and got $3 back. Investors assumed the growth story was linear,” says Nainesh Jaisingh, managing director, Standard Chartered Private Equity.

No buyer in sight

Nearly 75% of the investments made

during 2004-2009 are yet to find exits

Fund managers sold the India story to global investors and how. More than $32 billion was invested between 2006 and 2008, almost five times what was invested since the beginning of the decade. Before the gold rush, in early 2006, there were only 75-odd funds; by end-2008, there were over 200. With the capital influx much higher than the market could handle, a race ensued to snap up companies. Funds ended up outbidding each other and paying bizarre valuations. “This business is all about getting your entry multiple right. This is difficult when valuations are stretched,” says Nitin Deshmukh, CEO, Kotak Private Equity. And at times, shortcuts were taken. “Most funds did not understand the risks that came with scaling up a business and the executions risks involved. Since they were running after the same deal, some


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