Barış Öney
The most fundamental principle of Private Equity Funds is that the funds need to exit from their investments by selling their shares in 3 to 7 years. The exit methods are determined and agreed even before the investments are realized in the share purchase and shareholders agreements. There are 3 ways a private equity investor can exit from its invested company: Sell its shares to a third party buyer; sell its shares to the current owner at an agreed return; or sell its shares through an IPO.
Private Equity Funds have invested in 180 some companies in Turkey in the last 6-7 years. Approximately 20-30 of these investments had successful exits. The situation in China and India is very different than in Turkey. 10 years ago China and India were growing; stock markets were expanding, with the expectation of growing capital markets and therefore investors were thinking that they could exit with IPOs. Private Equity Funds have invested in these countries with the intention of exiting mostly via an IPO. After 5-6 years they realized that those markets were not as developed as it was initially thought and an exit with an IPO wasn’t really an option any more. It was realized that, 65% of these investments in India were unexitable. Capital markets in China were shut down for 1.5 years. Companies couldn’t make IPOs any way, it is just opening up recently.
With the IPO barrier in China and India, other methods of exits are being discussed. Either sell the shares back to the current owner or sell them to a third party. If the current owner does not want to buy back his/her shares, that leaves only one option, which is to sell the shares to a third party. However, extracting a good value out of a sale requires the company to be in a good condition. Company’s founding partner, general manager and executives should deeply plan and manage this process starting at least a year before the planned sale date. Globalturk Capital specializes at this point. Selling a company with a Private Equity Fund in it should be approached a lot more differently than a normal transaction. This bears many different processes in it. This process contains additional areas to manage like, planning for the exit process earlier than normal, communications between the shareholders and the investor and working on the family psychology to manage the process.
