Pe funds seek exit alternatives in tough IPO market

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Bombay : While the primary market remains unfavorable to closing large deals, private equity funds that relied on IPOs to sell their stakes in private companies, particularly in the technology field, have begun to explore alternative ways to exit from their investments.

Some private equity funds are considering secondary transactions with other private equity funds or pre-IPO investors to generate cash, while others are exploring seed rounds to ensure the company can wait for market volatility and sign up as soon as a window of opportunity opens to launch an IPO.

According to data from the IVCA-EY PE/VC Roundup report, releases slowed in April with 26 releases worth $1.2 billion, compared to $2.7 billion on 13 releases in April 2021 and 2, $3 billion across 26 releases as of March 2022.

“With capital markets remaining volatile, PE/VC-backed IPOs are expected to be pushed back and those moving forward with their listing plans are revising both issue size as well as valuations” said Vivek Soni, Partner and National Leader, Private Equity Services, EY in the report.

“The U.S. Fed began tightening monetary policy with a 50 basis point interest rate hike and trade risk premium/discount rates rose globally, impacting significant negative on the valuations of loss-making but growth-oriented listed startups. This should also have a knock-on effect on the private capital side. Startup valuations and deal closings may see some slowdown in the coming months. “, added Soni.

Mint reported on May 18 that PE-backed companies such as Campus Activewear Ltd and Delhivery Ltd had downsized their IPOs to make their offerings more attractive to investors. In the case of Delhivery, investors who originally planned to sell shares worth 2,460 crore on IPO, eventually cut the sale plan to 1,235 crores.

Mint reported on May 2 that API Holdings Ltd, the parent company of Pharmeasy, is in talks with private equity investors to raise approximately $250 million in debt in a bridge financing round, as current market conditions are unfavorable to an IPO.

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