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Large private equity investors are having a payday even as a downturn is playing out in the public market. Consider the latest transactions at EPL and Healthcare Global Enterprises.
Private equity funds managed by Blackstone have entered into a definitive agreement to sell a 24.9 percent stake in EPL. Post the stake sale, Blackstone will recover all the cash investment it made in EPL and will still be left with a 26.55 percent stake in a company that has a market capitalisation of Rs 6,780 crore. That is a cool return on investment.
Blackstone had acquired a 75 percent stake in EPL in 2019. As Nomura research points out, the private equity group pared its stake in EPL to around 51 percent in 2020 and recovered half of its initial investment.
Elsewhere, CVC said it is selling a majority stake in Healthcare Global Enterprises at a price of Rs 445 per equity share. CVC acquired a controlling stake in Healthcare Global Enterprises at a price of Rs 130 per equity share in 2020. After the current stake sale, CVC is set to make manifold returns on its initial investment in Healthcare Global Enterprises.
And Blackstone and CVC are not the only ones cashing in on the premium valuations of the Indian stock markets. Over the last two years, numerous promoters and private equity firms tapped Indian stock markets to gain from the high valuations they were able to command. Hexaware Technologies is the most recent example.
Valuations and the post-COVID market re-rating aside, returns of the above-mentioned transactions highlight the virtues of long-term investing. Note that buyout firms are making good returns even after the recent correction in markets.
Of course, returns do not come easy. By acquiring controlling stakes, large investors assume the crucial responsibility of steering the respective companies.
Blackstone improved corporate governance and infused professional management into EPL. The company increased its presence in emerging markets and deepened product offerings.
At Healthcare Global Enterprises, CVC helped improve operating efficiencies. Hospital bed occupancy and profit margins improved at the company. “CVC had played a major role in driving operational efficiencies in the company,” say analysts at ICICI Securities.
While the exit transactions should please long-term minority investors, they also create a high performance benchmark for incoming promoters.
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