Performance of Private Equity Backed IPOs: Evidence from an Emerging Market

Abstract

This study covers 45 investee companies that were funded by PE firms during the period from June, 2000 to December, 2015. We have followed the Long-Nickels PME method, to estimate IRR and evaluate the performance of PE investment compared to market index. We found that, India is showing an increasing trend in the number of PE deals as well as the total amount invested through this route of investment, year over year. The post listing average returns have been mostly higher for the PE investors compared to the returns generated by shareholders. But surprisingly, these returns are on a decreasing trend. This can be attributed to increase in competition in the PE industry, leading to erosion of abnormal returns. The value added by the PE investors, to their investee companies, does not seem to be sustainable for long term because the post-listing shareholder returns have been consistently reducing and have been less than the PE investor’s returns.