Private equity (PE) investors have resorted to open market transactions to exit their positions in publicly traded companies, riding the surge in liquidity, as the coronavirus pandemic has stymied private market deal activity.
Between January and August, such open market sales added up to $1.5 billion, accounting for half of all PE exits in both value and volume, an EY analysis of VCCEdge data showed. Overall, PE exits fell 40% to $3 billion against the year-ago period.
Last week, Blackstone sold a 23% stake in Essel Propack Ltd through a block deal worth $252 million ( ₹1,861.50 crore). Earlier in September, another PE firm—ADV Partners—sold a 10.5% stake in Amber Enterprises for ₹604 crore, in a block deal.
In the past few months, many other PE firms such as Carlyle, Warburg, Partners Group and Westbridge Capital have sold a substantial amount of shares through the open market to book either part or full exits from investments.
“Most of these companies are trading at a premium to their pre-covid levels. In this current market environment of excess liquidity, there is a good appetite from institutional investors for high-quality stocks. Hence, it’s not surprising that financial sponsors are trimming market exposures. In most of these trades, PEs are selling only part of their holdings,” said Jibi Jacob, head of equity capital markets at Edelweiss Investment Banking.
According to Vivek Soni, partner and national leader, private equity services, EY, the pandemic has impacted PE exits, with only a few sectors showing good exit activity.
“PE/VC exits have faced considerable challenges, largely on account of the uncertainty created by covid. Like investments, exits too have been polarized, with exit activity happening in only a few sectors that have demonstrated resilience—financial services, life sciences, technology,” said Soni.
Soni added that the pandemic has led to a change in the mix of exit routes. “Unlike last year, there are hardly any meaningful exits by way of secondary (PE to PE) deals or strategic deals. Most of the exit value has been accounted for by either IPO (pre-covid) or open market exits, wherein investors have taken advantage of the run-up in markets and partially sold down their stakes in quality listed franchises—mostly in financial services,” said Soni.