GPs see more secondary deals, stress entrepreneur alignment – AVCJ India Forum

While exits in India have declined sharply in the last 12 months, Nainesh Jaisingh, global co-CEO of Standard Chartered Private Equity, said the problem was that many fund managers had only considered IPOs as their exit channel when the market was going up during the gold rush.

"There are a lot of opportunities nowadays including secondary transactions and strategic interests," he said. "Secondaries is sometimes a better way to go than forcing yourself to list when the company is not ready. Getting an IPO is not an exit when you cannot sell immediately and you may need to stay for another 2-3 years to get the liquidity."

Given that many of the 2006-2007 funds are now reaching their maturity, Anand Sunderji, regional representative of Paul Capital, said GPs need to re-evaluate their exit strategies. Should they hang on to their portfolio companies, betting that LPs will let them extend the fund, or do a secondary sale?

Amit Gupta, partner and chief operating officer at NewQuest Capital Partners, added that while Indian secondaries still contribute a single-digit proportion to total exits, the number will probably grow to mid-teens in three years' time. "It's a hard reality about our business, we don't have a 10-year cycle and we need to realize the returns by 7-8 years," he said. "If we don't take the fund to a logical end, our LPs will force us to do so - even though an extension of 1-2 years would be possible."

While most speakers at the forum agree that GPs should broaden their exit strategies, global funds such as The Carlyle Group and KKR highlight the importance of alignments with entrepreneurs during these processes - especially when the original proposition of many minority investments was to pursue an IPO.

"Secondaries is a good way out and many strategic investors want to go into India even if it is a minority stake. If you have a good agreement with the entrepreneur and you can sell part of your and part of his stake to a strategic investor, this is an excellent exit opportunity," said Sanjay Nayar, CEO of KKR India. "You need to keep reminding yourself and your partner that there should be a way for an exit. Unfortunately we are seeing quite a number of disputes right now - forget who's right or wrong."

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