With the primary market continuing to remain unfavourable for concluding large deals, private equity funds that were banking on IPOs to sell their stakes in private companies, especially in the technology space, have begun exploring alternative routes to exit their investments.
Some PE funds are looking at secondary trades with other PE funds or pre-IPO investors to generate some liquidity, while others are exploring bridge rounds to ensure the company can wait out the market volatility and list as soon as a window of opportunity opens up to launch an IPO.
According to data from IVCA-EY PE/VC Roundup report, exits slowed down in April with 26 exits worth $1.2 billion, compared to $2.7 billion across 13 exits in April 2021 and $2.3 billion across 26 exits in March 2022.
“With capital markets remaining volatile, PE/VC-backed IPOs are expected to be pushed further and those that are going ahead with their listing plans are revisiting both issue size as well as valuations,” said Vivek Soni, partner and national leader, private equity services, EY in the report.
“The US Fed has started tightening monetary policy with a 50 bps interest rate hike and business risk premium /discount rates have gone up globally, which has had a significant negative impact on valuations of listed loss-making but growth-oriented startups. This is expected to have a spillover effect on the private capital side as well. Both startup valuations and deal closures could see some slowdown in the coming few months,” added Soni.
Mint reported on 18 May that PE-backed companies such as Campus Activewear Ltd and Delhivery Ltd had cut down their IPO size to make their deals more attractive to investors. In the case of Delhivery, investors who had initially planned to sell shares worth ₹2,460 crore in the IPO, eventually cut down the sale plan to ₹1,235 crore.
Mint reported on 2 May that API Holdings Ltd, the parent of Pharmeasy, is in talks with private equity investors to raise around $250 million in debt in a bridge financing round as current market conditions are unfavourable for an IPO.
