Buybacks of shares least preferred mode of exit for private equities

In 2018, the most popular mode of exit for PEs was strategic sale through merger & acquisition

The term ‘buyback of shares’ has got publicity on being mentioned in Café Coffee Day founder V G Siddhartha’s alleged suicide note.

Buyback of shares is one way a promoter can offer an exit to a private equity (PE) investor. However, it has been the least preferred and has declined as a mode of exit in the past five years, shows data from VCCEdge.

Preferred more are finding a strategic buyer, selling shares in the open market or through an Initial Public Offer (IPO) and selling to another investor (secondary sale). So far, 2019 has seen only five buyback deals; 2018 saw 10, accounting for only 1.4 per cent of total deal value.

In 2018, the most popular mode of exit for PEs was strategic sale through merger & acquisition. These accounted for 60 per cent of total deal value. Followed by exits through the stock market (18 per cent), secondary sales (13 per cent) and IPOs (7.4 per cent). The share of exit through strategic sale rose from five per cent in 2015 to 44.7 per cent in 2016 and 60 per cent in 2018.

Sale through the open market has also been strong, accounting for 58 per cent of all exits in 2015, 30 per cent in 2016, 52 per cent in 2017 and 18 per cent in 2019, in tandem with rise and fall in the stock market. The share of exits through buybacks came down to 1.4 per cent in 2018, gradually falling from 7.7 per cent in 2015 to 4.9 per cent in 2016 and 3.5 per cent in 2017.

In 2019, there have been fewer exits through strategic sale. Exits through the open market accounted for two-thirds of all by deal value. Despite a difficult market, IPOs accounted for a third of all exits.