Some experts feel that the private transaction or strategic sale route for the exit of private equity (PE) investors will have important implication in the PE industry. It is transforming the very nature of private equity business in India, reports suggest.
PE investors can exit their investment in an unlisted company through several routes, the prominent among them being the Initial Public Offering (IPO) route and the private transactions or stake sale to a strategic buyer or financial investor.
While exit through IPO route accounted for a mere 8 per cent of the exits by private equity investors between January 2005 and September 2011, the corresponding figure for private transactions was 44 per cent.
Some experts argue that when a private equity fund is invested in a business, finding strategic investors becomes much easier. Purchasers in private transactions include domestic and international, financial and strategic investors.
The incoming investor derives comfort about the companyÂ’s corporate governance, systems, processes and information quality. There is also the possibility that in a few cases, the promoters may exit along with the fund to a strategic buyer in a private transaction.
Private equity funds, in turn, are likely to seek businesses that have the potential to be sold to buyers or investors and promoters.
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