Indian VC/PEs are excited that with the new government with clear mandate set to take office, the IPO markets in India will be better in the next 6-8 months. Is it the best exit for VC/PEs? IPOs usually involve selling a minority stake to the public and fail to extract and synergy control premium that majority stake sales can elicit. Public issue of equity involves high transaction costs and carries the risks of market conditions for success. The other common exit option is secondary sale, but PE firms at the buy side are shrewd negotiators and can walk out of a deal if they do not like, this limits the premium for the seller. Management Buy In is another possibility, but will usually involve a PE, limiting the upside potential.
Trade sales seem to be better – strategic players who have interests in the sector and company pay a higher premium for control and synergy and deals involve very little payout to the bankers and legal team, bettering the returns for the investors.