Private equity companies are touted to be amongst the smartest guys in the financial world. But even they seemed to have gotten carried away by the very good times that occurred during the pre-2008 crisis situation. Today's chart of the day displays the value of the private equity transactions that have taken place in India over the past decade. As you can see, 2007 was a busy year for them with deal values coming in at a high figure of US$ 19 bn.
Is the PE mania back?
However, as the Financial Express has stated, this year is likely to see a large chunk of those investments being exited given the stipulated time period of those funds coming to an end. And with this, PE firms are likely to make an exit of US$ 30 bn (current value of those investments) in the full year 2015.
Initial public offerings are amongst the many exits routes available to PE firms. And with the markets clocking highs one day after another, the sentiments could not be riper for making the most of it. As such, it may not be surprising to see a flurry of IPOs hitting the market this year.
However, what will eventually decide the fate of these IPOs and the subsequent performance of stocks on the market will be the quality and performance of those businesses. That goes without saying. However, considering that these businesses would have been backed by PEs, there would be a general lure to buy into those businesses given the transformation, professionalism and expertise that the PE companies would have provided to the managements of these businesses. At the same time, investors should also keep in mind that PE companies work on high internal rate of return targets. And thus, to achieve those, it would not be surprising to see the issues being priced expensive at the time of IPO. As such - something that we have always been saying - what it boils down to is for an investor to take into consideration the risk-reward ratio before applying for such IPOs.
It was not long ago when an IPO of well known clothing brand was oversubscribed by 7.8 times. While the company had decent fundamentals, the stock was seemed quite expensive . One of the other key reasons for us to give this view was the fact that it was the promoters (which included a PE firm) who were cashing out, rather than any money going back into the business. As of yesterday, the stock closed lower by about a fourth from its issue price; the stock has been listed for less than two months.
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However, as the Financial Express has stated, this year is likely to see a large chunk of those investments being exited given the stipulated time period of those funds coming to an end. And with this, PE firms are likely to make an exit of US$ 30 bn (current value of those investments) in the full year 2015.
Initial public offerings are amongst the many exits routes available to PE firms. And with the markets clocking highs one day after another, the sentiments could not be riper for making the most of it. As such, it may not be surprising to see a flurry of IPOs hitting the market this year.
However, what will eventually decide the fate of these IPOs and the subsequent performance of stocks on the market will be the quality and performance of those businesses. That goes without saying. However, considering that these businesses would have been backed by PEs, there would be a general lure to buy into those businesses given the transformation, professionalism and expertise that the PE companies would have provided to the managements of these businesses. At the same time, investors should also keep in mind that PE companies work on high internal rate of return targets. And thus, to achieve those, it would not be surprising to see the issues being priced expensive at the time of IPO. As such - something that we have always been saying - what it boils down to is for an investor to take into consideration the risk-reward ratio before applying for such IPOs.
It was not long ago when an IPO of well known clothing brand was oversubscribed by 7.8 times. While the company had decent fundamentals, the stock was seemed quite expensive . One of the other key reasons for us to give this view was the fact that it was the promoters (which included a PE firm) who were cashing out, rather than any money going back into the business. As of yesterday, the stock closed lower by about a fourth from its issue price; the stock has been listed for less than two months.
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