“Private Equity Exits in China and India” Preliminary results
Why do we need an exit study on Asian PE? Net IRR’s to investors Asian PE shows average but improving returns to investors… 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
…relative to other asset classes and geographies … supported by a strong stock market … and with strong returns for Top environment… Managers. Overlay of Asian PE returns with public indices Performance of Top Quartile managers Returns are not meaningful Illustrative only for recent vintages Not (!) direct comparison How much of performance comes from How do top managers differ from broader rising markets and how much from market with respect to exits? operating performance improvement? Are they better at choosing time and place How good are PE firms at timing the for exits or better at selecting companies market? that are easier to exit? Source: Cambridge Associates and MSCI as of 31. Dec. 2009
Of course no LP “wants” just average returns… Expected Gross Multiple Returns – Top LP Portfolios Expected Gross Multiple Returns – Top GP funds Asian Top LPs have been able to Asian Top GPs have a strong track record outperform the “market” with on average with their funds on average achieving expected Gross Multiple returns for Gross Multiple returns of 2.4x invested current portfolios of 2.0x invested capital capital … but how to select the “right” GPs upfront? Source: INSEAD study on Asian PE – A survey of Top LPs and GPs
Test of their quality is in the exits Exit channels of Top GPs (% of exits) Top GPs achieve majority of % of exits through trade sale (esp. exits 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? What is the exit situation in the wider market? Source: INSEAD study on Asian PE – A survey of Top LPs and GPs
Our exit study will focus on China & India PE investments by destination Planned change in allocation by Top LPs In bn US$ China and India have been in the top 3 Accordingly LPs are planning to increase destinations for Asian PE over the last 4 allocation to China & India in the near years term (next 12- 24months) Investment focus is shifting to emerging But how much money has really been Asia given size of economy and strong made (CoC returns)? macro – economic fundamentals Source: INSEAD study on Asian PE – A survey of Top LPs and GPs
Quest for Quality: involve more LPs Set up of exit study Mini Cases for Market data GP performance top exits & historic data typical Depth of examples for Broad “near” data Still relatively each exit complete data broad data set channel Limited depth More performance data Narrow focus but deep cases LP 2 LP 3 … Expanding our LP Panel
China PE – Investments and Exits Investments in China, 1999 - 2010 Smaller number of larger investments, especially since the financial crisis 800 140 700 120 Mean value USD m Seed - R&D - Start-up 600 100 Expansion - growth # deals 500 80 Pipe - Mezzanine - Pre-IPO 400 Buy-outs (MBO/MBI/LBO) 60 300 Others 40 200 Mean value - PE 20 100 Mean value - VC 0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Beijing Bank IPO 2bn Exits in China, 1999 - 2010 Fosun Int’ll IPO 1.5bn Sinotrans shipp. IPO 1.5bn 160 300 Sinotruk HK IPO 1.2bn Ping An Insurance 1bn 140 Belle Int’l hold. IPO 250 1.1bn Parkson Retail 647m Mean value USD m 120 Focus Media 403m 200 Acquisition - M&A 100 # deals 80 150 IPO 60 Other 100 40 Sale (Trade, FI) Mean value - Sales trade 50 20 Mean value - IPO 0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: INSEAD analysis based on AVCJ data (Preliminary)
India PE – Investments and Exits Investments in India, 1999 - 2010 The trend towards larger investments was interrupted by the financial crisis 400 100 90 350 Mean value USD m Seed - R&D - Start-up 80 300 Expansion - growth 70 # deals 250 60 Pipe - Mezzanine - Pre-IPO 200 50 Buy-outs (MBO/MBI/LBO) 40 150 Others 30 100 20 Mean value - PE 50 10 Mean value - VC 0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Exits in India, 1999 - 2010 Reliance Petr. IPO 1.8bn 80 250 Bharti Televentures 2.6bn Bharti Telev. IPO 174m 70 i-Flex solutions 593m 200 Mean value USD m 60 Acquisition - M&A 50 # deals 150 40 IPO 100 30 Other 20 Sale (Trade, FI) Mean value - Sales trade 50 10 Mean value - IPO 0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: INSEAD analysis based on AVCJ data (Preliminary)
Over time investments’ exit speed increased Invested companies in China, 1999 - 2010 Invested companies in India, 1999 - 2010 Non exited IPO Trade sale Exits w/o inv Non exited IPO Sale India more affected 600 300 IPOs more common by .com boom and 16 in China especially bust: higher # deals 10 500 250 # investees exited # investees exited 14 102 from 2005 on in 2000-2001, but 4 4 4 very low exits for 18 41 400 200 18 vintage 2001 16 70 300 150 31 4 1 2 238 220 18 7 427 395 0 0 200 100 0 17 1 18 182 10 36 9 10 282 7 131 103 26 30 4 221 193 111 100 50 13 14 8 18 15 6 5 79 57 110 143 8 10 13 27 17 10 60 5 57 112 52 3 4 70 36 27 23 24 0 0 199920002001200220032004200520062007200820092010 199920002001200220032004200520062007200820092010 Investment vintage Investment vintage % exited 35% 25% 40% 30% 30% 26% 27% 24% 23% 10% 9% 1% % of exited 33% 26% 15% 36% 33% 37% 25% 17% 9% 4% 4% 0% Demographics of investees already exited ONLY Demographics of investees already exited ONLY Average # Average # investment 1.9 1.6 1.7 1.4 1.5 1.7 1.8 1.5 1.2 1.4 1.1 1.0 investment 1.9 2.9 1.5 1.4 1.9 1.6 1.6 1.7 1.1 1.0 0.0 0.0 rounds rounds Average Average time to first 3.2 4.2 3.7 3.2 3.3 2.3 2.0 1.5 1.7 1.3 0.5 0.4 time to first 4.9 3.6 3.8 3.0 2.5 2.4 2.1 1.6 1.6 0.6 0.0 0.0 exit (years) exit (years) From 2004/05 to 2007 exits seem to be quicker than in the period from 1999 to 2003 Source: INSEAD analysis based on AVCJ data (Preliminary)
Investments exited in first 4 years: 23% in China & 18% in India “Old” Investments in China, 1999 - 2005 “Old” Investments in India, 1999 - 2005 Early investments in China, 1999-2005 IPO Sale IPO Sale 900 550 23% of invested companies 18% of invested companies 850 3 were exited within 4 years 22 500 16 0 2 6 800 28 8 # of invested companies # of invested companies 19 27 750 10 450 28 17 13 5 700 23 18 13 848 5 16 400 494 11 650 36 47 8 600 350 550 601 360 0 0 500 300 Total Year 0 Year 1 Year 2 Year 3 Year 4 Over 4 Non Total Year 0 Year 1 Year 2 Year 3 Year 4 Over 4 Non years exited years exited Exit year Exit year “Non exited” probably contains large number of deals exited (written off) but not reported Source: INSEAD analysis based on AVCJ data (Preliminary)
Example of detailed analysis (random sample of China funds) Partial (n=55) analysis China Average Gross Multiple % time until Number of deals reviewed By exit channel return realised (first) exit IPO 8 9.4x 45% 4y VC 23 Trade Sale 10 1.4x 93% 3.6y Write Off 5 -- -- 3.3y 55 IPO 28 5.8x 50% 2.4y Later stage 32 2 2.3x 100% 3y Trade Sale (Growth Capital) Other 2 2.6x 100% 4y
Telling the story beyond mega exits “Largest” exits Exit channels for China investments, 1999 - 2010 Exit channels for India investments, 1999 - 2010 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 omitting failures but also the many “solid” Note: the same company can appear in several entry/exit exits in PE/ VC portfolios channel in case of multiple entry/exit rounds. Source: INSEAD analysis base d on AVCJ data (Preliminary)
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