Private equity funds flock to listed firms – ET

Posted on March 4, 2011 by

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More private equity funds are choosing to invest in publicly held companies as stocks of many listed firms are now trading at attractive prices on the bourses .

The most recent deal is General Atlantic’s 67 crore investment in Hindujas-promoted IndusInd Bank through open market purchase. Last month, ChrysCapital picked up around 10% stake in Pune-based IT consulting firm KPIT Cummins Infosystems Limited for over 110 crore.

“With the price correction in the capital market, valuations are much more realistic and attractive for private equity firms to deploy fund in listed entities,” said Sanjiv Kaul, MD at ChrysCapital. The firm invests a substantial amount in publicly listed entities.

Recently, the entire founding team of Sequoia Capital quit the firm to set up a new fund to invest in publicly listed companies. The fund will be set up by the end of 2011.

What is driving this trend is also the growing need for expansion capital amongst small and mid-cap companies that are listed on bourses. “Liquidity is often and issue with medium sized companies and since they are not large enough, they find it difficult to attract large mutual funds to invest in them. That is where the role of private equity firms come in,” said a senior industry executive on condition of anonymity.

Last year private equity firms invested around $780 million in 38 companies as against $618 million in 2009, as per Venture Intelligence, a research firm that tracks private equity transactions and mergers and acquisitions in the country. Currently, private investment in public equity deals in India account for 10-12 % of the number of private equity/venture capital deals and it is in the rise.

“With the industry maturing and greater focus on global funds in India now, investments in publicly-listed companies are bound to go up in the years to come,” said Mayank Rastogi, partner (private equity) at consulting firm Ernst & Young.

Besides, investments in listed entities offer better transparency and accountability compared to private companies. It also makes exit routes for investment firms easier. Typically, a single private equity investment cycle lasts 3-5 years where public listing for private equity firms is one of the most common routes to exit.

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Posted in: India