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December 04, 2011

"2012 to be poor for exits, good for investments"

In an interview published in The Mint (in text and video formats), Vikram Utamsingh, Partner - Transactions and Restructuring & Private Equity Advisory, KPMG India, says that while the exit track record of India-dedicated PE funds has not been great in the last few years, things are likely to improve from here.
...results are going to be bad for a couple of years because the industry is holding on to a portfolio of investments and we can assume that at least one-third of them will not make returns. So what are investors going to do with these investments? Ultimately, investors will have to exit them, write them off, or something. I think the industry will continue to see some bad news, for a couple of years.

Hopefully, the next 12 months are going to be a very good period for PE investments. To begin with, we have a stock market which is not very vibrant. So, there are a lot of IPOs that are not happening. These companies are now coming to PE firms to raise money. Those firms are also getting a bit tempered on their valuation expectations. There is a hope for the industry that 2012 will actually be a good year for PE investments. From the exit point of view, it will certainly be negative but from investment point of view it will hopefully be positive.

...I think returns will improve over a period of time simply because the quality of PE deals that investors are doing has improved. If you go back to investments in 2005-06-07, there was to some extent a herd mentality, people were thinking they were losing out at an investment opportunity becaus five firms were bidding for it. There was undue excitement on investments. I think PE firms have significantly matured now, they have undergone a negative business cycle and I guess reality has struck them.They are not in a rush to make investments today. There is no pressure on funds to do two, three investments a year. I think the quality of investment has improved and, therefore, you shall see the results of quality of investment in 2014, 2015.

Click Here to download the latest KPMG report on PE exits in India.

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