Private equity firms eye investment exits, low valuations in 2013

Private equity firms see an improved environment for investments in 2013, but exits will continue to dominate the year ahead, experts said. Healthcare, financial services and technology will be top PE picks for India.

"In the last couple of quarters, PE investments have picked up and 2013 will prove to be a good vintage year," said Shashank Singh, partner and head of India at Apax Partners. Limited partners (investors in PE funds) measure returns by way of 'vintage years'. 2006-07 was a very poor vintage year since the valuations of investor firms were very high.

On the other hand, 2009 was a good year because of low-entry valuations.

The focus of veteran PE firms currently is largely on exits rather than investments. "A tremendous amount of capital has been delivered already in the country but not much performance (in terms of exits) has been demonstrated yet. Hopefully, the IPO market will revive and aid exits for PE firms. We remain believers in the long-term story of India but near-term challenges remain," said Gopal Jain, founder and MD, Gaja Capital Partners.

"Compared to 2005, we are seeing a growth in deal volumes but the process of correction is also happening and will continue till exits in India really take off," he added.

PE firms invested $7.6 billion across 415 deals in 2012 and $9.6 billion across 446 deals in 2011, according to Ernst & Young's 2012 annual round-up report.

"A significant amount of capital will be invested in India this year but you cannot compare today's PE deal volumes to 2007's investment flow since the Indian market's size has grown and it cannot absorb that amount of capital. Also, on a relative basis, I see a healthy correction happening in the PE industry in 2013," said Jain.

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