NEW DELHI | MUMBAI: Private equity funds, which mostly invest in unlisted companies, are buying more shares in listed firms trading at attractive prices on the bourses. The downturn in stock markets in the past few months has brought down valuations of companies throwing up significant investment opportunities for PE firms to invest in listed enterprises, termed as PIPE deals.
“India’s equity markets have corrected dramatically,” said Rob Chandra, managing partner at Bessemer Venture Partners that recently raised a $1.6 billion fund, of which a quarter is dedicated for the Indian market The fund which has been investing in India for seven years now has a listed portfolio that is currently around 30% of its total activity.
This includes companies such as Shriram EPC and Orient Green Power . As per data available with Venture Intelligence, a research firm that tracks private equity investments and mergers and acquisitions in India, the period between January and June saw 27 PIPE deals worth $1.05 billion (about Rs 4739 crore) vis-a-vis 16 deals amounting to $0.27 billion (about Rs 1219 crore) in the same period last year.
Private equity funds are opting for PIPE (private investment in public equity) deals in mostly semi-large and mid-cap companies across sectors.
“We find valuations in public markets to be far more reasonable than private equity markets, although it tends to vary by sector and by year depending on the amount of capital chasing a few sectors which are ‘in favour’ at any given point,” said KP Balaraj, MD at WestBridge Capital Partners, who is part of a team of PE managers raising a new fund for investments in public enterprises that is due to launch by the end of this year.
Range-bound equities provide an easy turf for private equity (PE) funds to pick stocks from the secondary market. PE fund managers expect the trend to continue if markets hold on to current levels for some more time.
“It is only in India where you will find so many small-scale companies in the listed space. These companies are not tracked by most analysts. If one digs a bit deeper, there are many good companies in the listed space where PE funds can make investments,” said Raja Kumar, founder Ascent Capital “PIPE valuations or secondary market valuations are much more attractive than private space valuations currently,” he added.
In PIPE deals, a PE fund purchases a certain percentage of the shareholding in a listed company at market price or at a discount to market value. In some of the large ticket transactions sealed in the listed space this year, Apax Partners invested $375 million iGate in January, while Kolkata-based non-banking finance company Magma Fincorp raised close to $100 million from KKR and IFC.
ChrysCapital, India’s home grown private equity biggie, picked up around 10% stake in Pune-based IT consulting firm KPIT Cummins Infosystems Limited for over $25 million in February.