IPO exit channels tighten, PE seeks diversified exit strategies

　　Grand Thornton recently released a report indicating that, with the tightening of IPO exit channels, Chinese private equity fund managers are seeking alternative channels such as secondary mergers and acquisitions and peer-to-peer transactions. However, to date, China has not yet formed large-scale non-IPO exit channels.
　　Grand Thornton conducted a questionnaire survey of private equity fund managers worldwide in the fall of this year. The survey shows that although the global economy has been severely hit by factors such as the European debt crisis, the private equity industry remains relatively optimistic. Approximately 60% of global private equity funds believe that investment activities will increase in the next year. Among the BRICS countries (Brazil, China, Russia, India, and South Africa), including China, private equity funds are even more optimistic about next year's investment, with 94% of fund managers stating that they will increase or maintain their current investment activities next year.
　　On the other hand, affected by the global volatile economic situation, the PE industry is quietly undergoing a transformation, evolving from previously relying on financial leverage and complex financial instruments to achieve investment returns to now focusing more on the growth of the invested companies themselves. In order to help the invested companies achieve performance growth, PE investors are increasingly involved in the specific affairs of company development. Among them, PE investors most hope to participate in company strategy formulation, financial planning, and human resource development, with proportions of 46%, 35%, and 30%, respectively.
　　In terms of exit methods, Chinese PE exits are becoming more cautious. The report shows that although most countries in the BRICS group believe that exit activities will increase, mainland China GPs (General Partners) generally believe that future investment returns will decline. Compared with other regions, BRICS PE pays more attention to the IPO exit channel. Globally, IPO exits account for only 14% of all exit channels, while this proportion reaches 37% in the BRICS countries. The proportion of BRICS countries exiting through secondary mergers and acquisitions is 20%, lower than the global 32%, while peer-to-peer transactions are the most common exit channels for both the global and BRICS countries, with proportions of 53% and 43%, respectively.
　　Liu Dongdong, Partner of Grand Thornton's M&A Transaction Support Services, said: "Although the IPO exit channel in the Chinese market has tightened, the rise of secondary mergers and acquisitions and strategic buyers has filled this gap. Currently, most PEs operating in China still prefer to choose IPO exits, because the profits from IPO exits are higher compared to peer-to-peer transactions and secondary mergers and acquisitions."
　　Liu Dongdong believes that: "In the next few years, on the one hand, PEs with long-term investments will emerge, and on the other hand, when the IPO market cannot fully digest the companies invested by PEs, the price-to-earnings ratio will naturally decrease. When the price-to-earnings ratio decreases appropriately, investors and integrators in an industry will accept some relatively excellent PE-invested companies with good performance." This will greatly increase the proportion of secondary mergers and acquisitions and peer-to-peer transactions.
　　In terms of fundraising, the report shows that in the next few years, the number of PE funds will continue to decrease, and the PE industry will undergo a new round of reshuffle, with the survival of the fittest. New funds without past performance records and poorly managed funds will find it difficult to raise funds. For PE funds with a good track record, "fundraising is very easy, there is plenty of money."