and India Preliminary results Why do we need an exit study on Asian - - PowerPoint PPT Presentation

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and India Preliminary results Why do we need an exit study on Asian - - PowerPoint PPT Presentation

Mar 25, 2024 455 likes •651 views

Private Equity Exits in China and India Preliminary results Why do we need an exit study on Asian PE? Net IRRs to investors Asian PE shows average but improving returns to investors How much of reported returns are realised?

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“Private Equity Exits in China and India”

Preliminary results

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Why do we need an exit study on Asian PE?

  • How much of reported returns

are realised?

  • How much of return comes

from “hits” vs. average portfolio company?

  • How long is the average

holding period?

  • What are the dominant exit

channels?

 Looking beyond average returns for Asian PE…

Source: Cambridge Associates as of 31. Dec. 2009 Net IRR’s to investors

Asian PE shows average but improving returns to investors…

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Source: Cambridge Associates and MSCI as of 31. Dec. 2009

  • How much of performance comes from

rising markets and how much from

  • perating performance improvement?
  • How good are PE firms at timing the

market?

Overlay of Asian PE returns with public indices

  • Illustrative only
  • Not (!) direct comparison

… supported by a strong stock market environment…

  • How do top managers differ from broader

market with respect to exits?

  • Are they better at choosing time and place

for exits or better at selecting companies that are easier to exit?

Returns are not meaningful for recent vintages

Performance of Top Quartile managers

… and with strong returns for Top Managers.

…relative to other asset classes and geographies

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Of course no LP “wants” just average returns…

Source: INSEAD study on Asian PE – A survey of Top LPs and GPs Expected Gross Multiple Returns – Top LP Portfolios

  • Asian Top LPs have been able to
  • utperform the “market” with on average

expected Gross Multiple returns for current portfolios of 2.0x invested capital

Expected Gross Multiple Returns – Top GP funds

  • Asian Top GPs have a strong track record

with their funds on average achieving Gross Multiple returns of 2.4x invested capital

… but how to select the “right” GPs upfront?

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Test of their quality is in the exits

Source: INSEAD study on Asian PE – A survey of Top LPs and GPs

  • Top GPs achieve majority of

exits through trade sale (esp. buy-out firms) and IPOs (esp. growth firms) while maintaining low loss rate

  • How does this differ from

wider market? – What is the baseline?

  • What are the geographical

differences?

% of exits

Exit channels of Top GPs (% of exits)

 What is the exit situation in the wider market?

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Our exit study will focus on China & India

Planned change in allocation by Top LPs

  • Accordingly LPs are planning to increase

allocation to China & India in the near term (next 12- 24months)

  • But how much money has really been

made (CoC returns)?

PE investments by destination

  • China and India have been in the top 3

destinations for Asian PE over the last 4 years

  • Investment focus is shifting to emerging

Asia given size of economy and strong macro – economic fundamentals

In bn US$

Source: INSEAD study on Asian PE – A survey of Top LPs and GPs

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Quest for Quality: involve more LPs

GP performance historic data

  • Still relatively

broad data set

  • More performance

data

Mini Cases for top exits & typical examples for each exit channel

  • Narrow

focus but deep cases

Market data

  • Broad “near”

complete data

  • Limited depth

Depth

  • f

data Set up of exit study

LP 2 LP 3 …  Expanding our LP Panel

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China PE – Investments and Exits

Source: INSEAD analysis based on AVCJ data (Preliminary) Investments in China, 1999 - 2010

20 40 60 80 100 120 140 100 200 300 400 500 600 700 800 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Mean value USD m # deals Seed - R&D - Start-up Expansion - growth Pipe - Mezzanine - Pre-IPO Buy-outs (MBO/MBI/LBO) Others Mean value - PE Mean value - VC

Smaller number of larger investments, especially since the financial crisis

Exits in China, 1999 - 2010

50 100 150 200 250 300 20 40 60 80 100 120 140 160 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Mean value USD m # deals Acquisition - M&A IPO Other Mean value - Sales trade Mean value - IPO

Beijing Bank IPO 2bn Fosun Int’ll IPO 1.5bn Sinotrans shipp. IPO 1.5bn Sinotruk HK IPO 1.2bn Belle Int’l hold. IPO 1.1bn Ping An Insurance 1bn Parkson Retail 647m Focus Media 403m

Sale (Trade, FI)

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India PE – Investments and Exits

Investments in India, 1999 - 2010

10 20 30 40 50 60 70 80 90 100 50 100 150 200 250 300 350 400 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Mean value USD m # deals Seed - R&D - Start-up Expansion - growth Pipe - Mezzanine - Pre-IPO Buy-outs (MBO/MBI/LBO) Others Mean value - PE Mean value - VC

The trend towards larger investments was interrupted by the financial crisis

Source: INSEAD analysis based on AVCJ data (Preliminary) Exits in India, 1999 - 2010

50 100 150 200 250 10 20 30 40 50 60 70 80 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Mean value USD m # deals Acquisition - M&A IPO Other Mean value - Sales trade Mean value - IPO

Reliance Petr. IPO 1.8bn Bharti Televentures 2.6bn i-Flex solutions 593m Bharti Telev. IPO 174m

Sale (Trade, FI)

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57 112 52 70 57 110 143 282 427 395 221 193 13 26 27 15 17 30 36 70 102 41 18 1 18 10 8 14 6 9 18 16 16 4 2 100 200 300 400 500 600 199920002001200220032004200520062007200820092010 # investees exited Investment vintage Non exited IPO Trade sale

IPOs more common in China especially from 2005 on

Invested companies in China, 1999 - 2010

Over time investments’ exit speed increased

% exited 35% 25% 40% 30% 30% 26% 27% 24% 23% 10% 9% 1% Demographics of investees already exited ONLY Average # investment rounds 1.9 1.6 1.7 1.4 1.5 1.7 1.8 1.5 1.2 1.4 1.1 1.0 Average time to first exit (years) 3.2 4.2 3.7 3.2 3.3 2.3 2.0 1.5 1.7 1.3 0.5 0.4 % of exited 33% 26% 15% 36% 33% 37% 25% 17% 9% 4% 4% 0% Demographics of investees already exited ONLY Average # investment rounds 1.9 2.9 1.5 1.4 1.9 1.6 1.6 1.7 1.1 1.0 0.0 0.0 Average time to first exit (years) 4.9 3.6 3.8 3.0 2.5 2.4 2.1 1.6 1.6 0.6 0.0 0.0

From 2004/05 to 2007 exits seem to be quicker than in the period from 1999 to 2003

36 111 60 23 27 24 79 182 238 220 131 103 5 7 4 3 5 4 10 18 14 4 1 13 31 7 10 8 10 17 18 10 4 4 50 100 150 200 250 300 199920002001200220032004200520062007200820092010 # investees exited Investment vintage Exits w/o inv Non exited IPO Sale

India more affected by .com boom and bust: higher # deals in 2000-2001, but very low exits for vintage 2001

Invested companies in India, 1999 - 2010 Source: INSEAD analysis based on AVCJ data (Preliminary)

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Investments exited in first 4 years: 23% in China & 18% in India

848 601 22 28 28 23 16 47 3 16 27 13 13 11 500 550 600 650 700 750 800 850 900 Total Year 0 Year 1 Year 2 Year 3 Year 4 Over 4 years Non exited # of invested companies Exit year IPO Sale

23% of invested companies

Early investments in China, 1999-2005

“Old” Investments in China, 1999 - 2005

494 360 2 8 10 5 5 8 6 19 17 18 36 300 350 400 450 500 550 Total Year 0 Year 1 Year 2 Year 3 Year 4 Over 4 years Non exited # of invested companies Exit year IPO Sale

18% of invested companies were exited within 4 years “Old” Investments in India, 1999 - 2005

“Non exited” probably contains large number

  • f deals exited (written off) but not reported

Source: INSEAD analysis based on AVCJ data (Preliminary)

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Example of detailed analysis (random sample of China funds)

Partial (n=55) analysis China

Number of deals reviewed 55 Gross Multiple return 9.4x

  • 1.4x

5.8x 2.6x 2.3x % realised 45%

  • 93%

50% 100% 100% Average time until (first) exit 4y 3.3y 3.6y 2.4y 4y 3y VC Later stage (Growth Capital) 23 32 By exit channel IPO Trade Sale Write Off 8 5 10 IPO Trade Sale Other 28 2 2

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Telling the story beyond mega exits

  • Most Media attention focuses on “Mega” exits
  • This risks painting PE/ VC players in Asia as

arbitrageurs benefitting from temporary valuation dislocation that won’t be sustainable

  • Plus it does not capture full picture by not only
  • mitting failures but also the many “solid”

exits in PE/ VC portfolios

Source: INSEAD analysis base d on AVCJ data (Preliminary) “Largest” exits Exit channels for China investments, 1999 - 2010 Note: the same company can appear in several entry/exit channel in case of multiple entry/exit rounds. Exit channels for India investments, 1999 - 2010

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3 mini case studies (public data)

Write-off Hunan Taizinai Group (Taizinai)

  • Goldman Sachs, Morgan Stanley and

Actis Capital invested US$73 million (US$18 million, US$15 million and US$40 million respectively) for a 31% stake in Taizinai at the end of 2006.

  • Taizinai, best known for its probiotic

yoghurt drinks, expanded too rapidly and was hit hard by China's tainted milk scandal, which hurt dairy sales across the country.

  • Taizinai went into provisional

liquidation (and later bankruptcy) in April 2010 wiping out the equity and leaving RMB 3 billion in debt

  • It’s founder was arrested in connection

with illegal company practices in June. Trade sale

  • In 2007 Q Investments

invested Rs2 billion (≈$50m) to incubate XCEL Telecom, an Indian telecom tower

  • perator.
  • XCEL Telecom went on to build about

1,700 telecom towers before being sold in 2009 to US-based American Tower for Rs7 billion.

  • This deal marked the first exit by a

private equity player in the telecom tower space, which has seen huge investments from PE funds in companies such as Bharti Infratel and Aditya Birla Telecom.

  • Yet as of 2010 the parties are locked

in a dispute over an escrow account set up at the time of the deal to cover potential tax liabilities from the transaction. XCEL Telecom IPO Belle International

  • In 2005 Morgan

Stanley PE and CDH invested in Belle, a vertically integrated women's shoe retailer.

  • Having only recently taken control of

its distribution the company grew to more than 4000 outlets by the time of its IPO in 2007.

  • The company raised USD 1.1bn in its

float making it the largest mainland China consumer company to go public in HK. The share price has since more than doubled leading to a >10x return for the PE investors. Source: public data

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Next Steps

  • Grow our LP Panel
  • Build bottom up database + complement larger market database
  • Get as many LPs to contribute Asian GP data as possible (all data will be

kept confidential and worked with / seen by INSEAD exclusively)

  • Analyse data and publish summary report by year end
  • Ensure that the report becomes a recurring event to provide insights over

time

  • Provide preferential insights/ analysis for LPs that are part of the “panel”
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INSEAD’s GLOBAL PRIVATE EQUITY INITIATIVE (GPEI)

www.insead.edu/gpei

Professor Claudia Zeisberger

claudia.zeisberger@insead.edu

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APPENDIX

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Top trade sales and IPOs 1999-2010

Trade sales

Amount USD m Year

IPOs

Raised USD m Year China China Ping An Insurance (Group) Company of China 1040 2005 China Minsheng Banking Corp. 4010 2009 Parkson Retail Group 647 2008 China Coal Energy 3573 2008 Jushi Group 430 2010 China Longyuan Power Group Corporation 2582 2009 Focus Media (China) Holding 403 2006 China Merchants Bank 2415 2006 HNA Airport Holding (Group) 380 2010 Huatai Securities 2296 2010 China Shanshui Cement (Sunnsy Group) 377 2009 Beijing Bank / Bank of Beijing 1995 2007 Taobao.com/Tao Bao Holding 360 2005 Sino-Ocean Land Holdings 1534 2007 Shanghai CGEN Digital Media Network 352 2006 Fosun International 1481 2007 China COSCO Holdings 311 2007 Sinotrans Shipping 1470 2007 China Dongxiang (Group) 237 2008 Sinotruk (Hong Kong) 1161 2007 India India Bharti TeleVentures 2564 2004 Reliance Petroleum 1807 2006 MphasiS BFL 367 2006 Suzlon Energy 332 2005 SpiceJet 319 2008 Edelweiss Capital 174 2007 Sintex Industries 256 2007 Bharti TeleVentures 174 2002 Dabur Pharma 220 2008 Punj Lloyd 144 2006 Ambuja Cement India 200 2005 Hathway Cable and Datacom 143 2010 Spice Communications/Spice Telecom 179 2006 Spice Communications/Spice Telecom 129 2007 Suzlon Energy 176 2006 Sobha Developers Pvt. 128 2006 Gujarat Ambuja Cements 144 2005 Fortis Healthcare 121 2007 XCEL Telecom Pvt. 136 2009 BGR Energy Systems 111 2008 Source: INSEAD analysis based on AVCJ data (Preliminary)