The PE Exit Overhang and the Distressed-Asset Opportunity in India

The most useful number in Indian private equity this year is not the one the headlines led with. Investment fell 33% to $19.6 billion in 2025, down from $29.2 billion the year before, according to the Bain & Company India Private Equity Report 2026^[1]. That is the figure that made the wires. The more revealing number sits one line down in the same dataset: exit volumes fell roughly 30% even as exit value crept up about 3% to around $34 billion. Fewer doors opened, and the ones that did opened narrower. That gap between capital that needs to come out and capital that actually came out is the overhang, and it is the single most important fact for anyone hunting deals in India over the next thirty-six months.

An overhang is not a crisis. It is a queue. A general partner who raised a fund in 2019 with a ten-year life and a five-year investment period is now staring at portfolio companies bought near the top of the 2021 cycle, marked at multiples the public markets no longer support, with limited partners asking when the distributions arrive. The fund clock does not stop because the IPO window is unfriendly. That pressure transmits straight through to the negotiating table, and it is where a patient buyer with cash finds a seller who has run out of reasons to wait. India has spent the better part of two years building exactly that population of sellers, and three separate channels feed it: aging PE portfolios looking for any clean exit, family conglomerates carving off non-core arms under succession strain, and a bankruptcy regime that has finally matured into a reliable source of recoverable assets. This is the first piece in our series on M&A opportunities in India, and it starts with the supply side, because that is where the value is.

The arithmetic of an overhang nobody planned for

Start with how the money was deployed. The 2018 through 2022 vintages are the heart of the problem, and they are a problem precisely because they were a success in their moment. Capital flooded into India on a thesis that was broadly correct: rising consumption, formalisation of the economy, a deepening equity market, and a generation of founders willing to sell control. Funds put that money to work at valuations that made sense against 2021 growth assumptions and 2021 exit multiples. Neither held.

Buyout value alone fell 55% across 2024 and 2025 combined, per Bain's tally. Average PE deal size collapsed to $118 million in 2025 from $209 million the prior year, and 70% of PE deal volume came in under $100 million, up from roughly half in 2024. Read those numbers together and a clear picture emerges. The large-cap end of the market, where the heaviest 2018-22 capital sits, has gone quiet on both the entry and exit sides. Big checks are not being written, and big positions are not being cleared.

Bain identified four pressures behind the large-cap stall, and each one feeds the overhang directly. Valuation gaps persist because sellers stayed anchored to peak multiples from three and four years ago while buyers underwrote more moderate growth and exit assumptions. Leverage tightened, raising the cost of the buyout structures that move large assets. Capital recycling from aging assets slowed, which is the overhang describing itself. And global capital allocation trade-offs pulled discretionary dollars toward other markets when India looked expensive relative to its own growth.

Why the bid-ask spread is the whole story

The bid-ask spread is not an abstraction in this market. It is the mechanism. A seller carrying an asset at a 2021 mark cannot accept a 2025 bid without booking a loss that the limited partners will see and remember. So the asset sits. It sits through one quarter, then a fiscal year, then a fund extension request. Holding periods stretch. Globally, the average hold for a buyout-backed company has climbed toward 6.7 years, and nearly a third of buyout-backed companies are now held more than five years. The Indian numbers are not identical, but the dynamic is, and the consequence is mechanical: every additional year a fund holds an asset past its expected exit, the internal rate of return erodes and the pressure to transact on whatever terms are available rises.

That is the seller a buyer wants to find. Not the distressed seller in the legal sense, not yet, but the structurally motivated one. The GP whose fund is in year seven of a ten-year life, whose LPs have started asking pointed questions in annual meetings, whose own ability to raise the next fund depends on showing realised distributions rather than paper marks. This seller is not desperate. He is constrained, which is more durable and more negotiable. The constraint does not lift when sentiment improves next quarter, because the fund clock keeps running regardless.

The investment-to-exit ratio illustrates the queue length. Across global buyout, that ratio ran around 2:1 in 2025, meaning twice as much capital went in as came out. Applied to a market like India where deployment was front-loaded into 2018-22, you get a backlog that cannot clear through IPOs alone, because the public window opens and shuts on its own schedule and cannot absorb the full inventory even when it is open. Public markets remained the largest single exit channel in India, but their share of exit value slipped to roughly 40% in 2025, and subdued post-listing performance pushed investors to look elsewhere. When the IPO route narrows, the inventory has to find another door, and those other doors are where buyers position themselves.

Where the exits are actually happening now

The exit data for 2024 sets the baseline. Exit activity reached roughly $33 billion, up 16% year over year, and India ranked among Asia-Pacific's top exit markets with 292 exits generating around $24 billion by one count. Inside that total, the route mix is the part worth studying, because the routes that grew tell you where motivated capital is finding willing counterparties.

Secondary sales reached $5.88 billion in 2024, up 11% from 2023. Advent International's exit from Bharat Serums & Vaccines and its sale of Manjushree Technopack were among the marquee names. Strategic sales delivered $4.08 billion, anchored by Advent's full exit from Bharat Serums through a $1.63 billion sale to Mankind Pharma, and by General Atlantic and Invus Group's $462 million exit from Capital Foods to Tata Consumer Products. Public market exits, which had been about 51% of exit value in 2023, rose to roughly 59% in 2024 before pulling back the following year.

Then 2025 rotated the mix. With public market performance softening, strategic sales rose to about 21% of exit value from 16%, reflecting sector consolidation and a stronger appetite among corporate buyers for inorganic growth. That shift, from listing as the default exit toward selling to a strategic, is the trend a deal team should internalise, because it changes who the natural buyer is. When a PE seller can no longer count on the public market to bid, the corporate strategic with synergies becomes the marginal buyer that sets the clearing price. For a strategic acquirer, that is leverage. You are negotiating against a seller whose best alternative just got worse.

The strategic buyer's moment

Consider what the Capital Foods and Bharat Serums transactions have in common beyond the headline. In both cases a financial sponsor handed a maturing asset to a corporate that wanted the platform for reasons unrelated to financial engineering. Tata Consumer bought distribution and brands. Mankind Pharma bought a specialty portfolio that fit its therapeutic ambitions. Neither buyer needed leverage to make the math work, which matters in a tighter-financing environment, and neither was underwriting a quick flip. They were buying assets to keep.

This is the structural advantage strategics hold during an overhang. The financial buyer competing for the same asset has to model an exit, layer in financing costs that rose with rates, and clear a return hurdle inside a fund life. The strategic measures the asset against its own cost of capital and its own synergy case, and frequently arrives at a higher number it can justify while still paying less than the seller's original 2021 mark. The seller takes it because the alternative is another year of holding and another conversation with LPs. Everyone signs. The deals desk that understands this dynamic stops thinking of itself as one bidder among many and starts thinking of itself as the natural clearing house for assets the public market has stopped wanting.

Sector rotation in 2025 reinforces where the strategics are circling. Consumer and retail PE activity rose 2.6 times year on year. Manufacturing and industrials climbed about 60%. IT and IT-enabled services fell roughly 30%. The capital is moving toward businesses with physical moats, domestic demand, and consolidation logic, and away from the software-led theses that defined the prior cycle. A buyer reading those sector signals knows where the motivated PE sellers will be concentrated, because the sectors falling out of favour with new capital are precisely the ones where existing holders most want out.

The family carve-out as the cleanest deal in the market

The single most underappreciated source of supply is not the PE portfolio at all. It is the Indian family conglomerate. Family-owned businesses and carve-outs from Indian conglomerates accounted for 40% to 45% of buyout deal volume, per Bain, and that share is being driven by a demographic and governance shift that has nothing to do with market cycles and will not reverse when sentiment turns.

The succession data is stark. Nearly 36% of Indian family businesses have no clear succession plan. While 79% of founders intend to pass the business to family, 45% do not actually expect their children to take over, and only 17% of heirs feel any obligation to join. That is a generation of promoters arriving at the same realisation at roughly the same time: the next generation is not coming, or is coming only for the part of the empire it finds interesting. The non-core divisions, the businesses built in the founder's expansionary decades that no longer fit the family's identity or the heir's ambition, become available.

For a buyer, a family carve-out is frequently the cleanest deal on the board, and it is worth being precise about why. The seller is motivated by something more durable than a fund clock. He is solving a personal and dynastic problem, not optimising a return. The asset is usually under-managed relative to its potential, because it sat inside a conglomerate where capital and attention flowed to the favoured divisions. And the price discipline on the buy side is real, because the seller's emotional attachment is to the core business, not the unit being sold. The promoter who would never part with the flagship at any price will sell the third-largest division to fund the flagship's modernisation, or to simplify the estate before a generational transfer, or simply because no one in the family wants to run it.

Carve-out execution is the moat

The catch, and it is the catch that keeps the field thin, is that carve-outs are operationally brutal. You are extracting a business that shared a balance sheet, an ERP system, a treasury function, shared services, sometimes shared customers and a shared brand, from the parent that birthed it. Transitional service agreements have to be negotiated and then unwound. Management that was loyal to the promoter has to be retained or replaced. The standalone cost structure that was hidden inside the group has to be rebuilt and is almost always higher than the carve-out model assumed.

This difficulty is the opportunity. Because carve-outs are hard, the buyer universe that can execute them credibly is small, and a small buyer universe means less competition for assets and more negotiating room on price and terms. The sponsor or strategic that has built genuine carve-out muscle, the playbook for standing up a standalone finance function in ninety days, the bench of operators who have done it before, the lender relationships that will underwrite the transition, holds a structural advantage that compounds. India is producing carve-out supply faster than it is producing carve-out capability, and that imbalance is where outsized returns live.

The succession wave is not a one-year phenomenon. India's family business cohort that built in the post-liberalisation decades is reaching transition age in numbers, and the carve-out volume it generates will run for years regardless of where PE investment sits in any given quarter. A buyer building a franchise around this supply is positioning against a multi-year structural trend, not trading a cyclical dip.

The IBC channel finally grows up

The third source of motivated sellers is the one with the longest and most disappointing history, which makes its recent maturation the most consequential development of all. The Insolvency and Bankruptcy Code, introduced in 2016, spent its early years as a promise that buyers learned to discount. Timelines blew through statutory limits, recoveries disappointed, and litigation turned what was meant to be a 180-day process into a multi-year ordeal. That reputation is now out of date, and the gap between the reputation and the reality is itself an edge for buyers who have updated their priors.

The recovery numbers tell the turnaround. Realisation by creditors improved to 36.6% of admitted claims in 2024-25, up sharply from 28.3% the prior year, with the cumulative figure around 32.8% as of March 2025. Against the pre-IBC regime, where recoveries ran 15% to 20%, that is roughly a doubling. By March 2025 the Code had rescued 1,194 companies and returned about Rs 3.89 lakh crore to creditors. By March 2026 that figure crossed Rs 4 lakh crore across 1,419 approved resolution cases. As much as 60% of all resolution plans ever approved came in the last three years alone, which means the machine is processing cases faster as it matures rather than slower.

The valuation arithmetic inside those resolutions is what a distressed buyer cares about most. Resolution plans on average fetched 93.4% of the fair value of assets and more than 170% of liquidation value, with the more recent cohort around 95% of fair value and 167% of liquidation value. That spread between fair value and liquidation value is the buyer's margin of safety. An acquirer entering through the IBC is paying a number anchored near fair value but is buying an asset whose downside is floored at liquidation value, in a process that wipes the legacy liabilities and delivers a clean balance sheet. That combination, a clean asset at a court-supervised price with prior claims extinguished, is the structural appeal of distressed acquisition, and the IBC now delivers it more reliably than at any point in its history.

The S&P upgrade is the institutional stamp

The validation that matters most came in December 2025, when S&P Global Ratings upgraded its assessment of India's insolvency regime from Group C to Group B, revising its view of the framework's creditor-friendliness from weak to medium. The ratings agency noted that average recovery values had risen above 30% from the old 15-to-20% range, and that the IBC had compressed the average resolution time for bad loans to roughly two years from the six-to-eight years that prevailed under the prior regime.

This is not a cosmetic upgrade. Months earlier, in August 2025, S&P had raised India's sovereign rating to BBB from BBB-, the first such move in nearly eighteen years, putting India on par with Indonesia and Mexico. S&P explicitly cited the IBC's role in improving payment culture and the rule of law as part of the reasoning. A creditor-friendly insolvency regime fed directly into a sovereign upgrade, which lowers the cost of capital across the entire system, which in turn improves the math on every distressed acquisition financed in that system. The institutional plumbing is reinforcing itself.

The remaining weakness is honest and worth stating, because a buyer who pretends it away gets hurt by it. Average resolution time actually worsened to 713 days as of March 2025 from 679 days a year earlier, still far beyond the 180-day statutory target. The IBC is more reliable on outcome than on speed. The successful buyer prices that duration in, structures patient capital that can sit through the timeline, and treats the legal calendar as a known cost rather than a surprise. The reward for that patience is an asset acquired near fair value with liabilities extinguished and a recovery framework that S&P now rates as genuinely creditor-friendly.

The plumbing beneath the distressed market is being rebuilt

Beyond the IBC courtroom, the machinery for moving distressed debt is being re-engineered in ways that widen the field of who can buy and how. The Asset Reconstruction Company model that has dominated India's stressed-asset handling for two decades is about to get a market-based alternative, and that shift changes the texture of the opportunity.

In April 2025, the Reserve Bank of India issued a draft framework proposing a route to securitise stressed assets as an alternative to the ARC model. Banks and NBFCs would sell pools where at least 90% of the exposure is non-performing to special purpose entities, which then issue security notes to investors, with assets segregated into retail and corporate pools. If the framework is adopted with clear operational guidance, it broadens investor access to distressed debt and reduces the system's reliance on the handful of ARCs that have historically been the only buyers. More buyers competing for paper is generally bad for buyers in the aggregate, but it is good for the development of the market, because it creates the liquidity and price discovery that let sophisticated acquirers build positions rather than wait for one-off auctions.

The legacy cleanup infrastructure also matters. The National Asset Reconstruction Company, India's government-backed bad bank established in 2021, was built to clear the large legacy exposures clogging bank balance sheets. As those positions move through NARCL and into resolution, they generate a pipeline of assets that eventually need an operating owner, and that owner is frequently a strategic or sponsor buying the underlying business rather than the debt.

Who actually owns this market today

One data point should anchor every foreign buyer's expectations. Indian investors account for roughly 90% of distressed deal value and 81% of deal volume, per Kroll. This is a domestic-dominated market, and the reasons are structural rather than incidental. Local players understand the promoter relationships, the regional politics of a stressed factory town, the labour dynamics, and the regulatory texture in ways that a fund parachuting in from Singapore or New York does not. They can move faster on diligence and they price the operational risk more accurately.

For a foreign buyer, the implication is not to stay away but to partner in. The credible path into Indian distressed assets runs through a local operating partner, a domestic co-investor, or a platform that already carries the relationships and the on-ground execution capability. The capital can come from anywhere. The execution has to be Indian, and the deals desks that have figured this out structure their distressed plays as partnerships from the first conversation rather than trying to retrofit local capability after the term sheet is signed.

Reading the supply signals like a buyer

Pull the threads together and a buyer's map of motivated sellers takes shape across three distinct populations, each with a different motivation and a different optimal approach. The PE overhang produces sellers constrained by fund clocks, best approached as a strategic offering certainty of close against a public window that may not reopen in time. The family carve-out produces sellers solving succession and identity problems, best approached with operational credibility and a demonstrated ability to manage the extraction. The IBC and distressed channel produces assets at court-supervised prices, best approached with patient capital and a local execution partner.

The sector overlay sharpens the targeting. Money is rotating into consumer, retail, manufacturing, and industrials, and away from IT services, which tells a buyer two things at once. The sectors gaining capital are where strategics will compete hardest, so the cleaner relative value sits in the sectors capital is leaving, where existing holders are most eager to exit and competition for their assets is thinnest. A contrarian buyer willing to underwrite an out-of-favour IT-services platform from a PE seller desperate for an exit may find better terms than the crowd chasing the consumer asset everyone wants.

What the macro backdrop adds

The macro environment cuts in the buyer's favour in a way it did not a year ago. The sovereign upgrade to BBB lowers the cost of capital across the system, which improves acquisition financing economics precisely as the distressed and overhang supply peaks. Deal volumes rose about 10% to 1,675 transactions in 2025 even as values fell, which means the market is busy, just busy at smaller sizes, exactly the mid-market range where carve-outs and distressed assets cluster. The activity is there; it has simply migrated down the size curve to where the motivated sellers are.

VC and growth investments actually rose 18% to $16.2 billion in 2025 even as buyout fell, which is a useful tell about where conviction remains. The capital that pulled back was the large-cap buyout capital most exposed to the overhang, not the growth capital chasing the next cycle's winners. For a control-oriented buyer, that retreat of large-cap competition is a gift. The biggest competitors for the biggest assets have stepped back, leaving the field thinner for whoever is still willing to write control checks into a market everyone else is calling cautious.

The window and how long it stays open

Overhangs resolve. That is the nature of a queue. At some point the IPO window reopens widely enough, or valuations adjust enough, or the sellers capitulate enough, that the backlog clears and the negotiating leverage swings back toward sellers. The question for a buyer is not whether the window closes but how long it stays open, and the honest answer is that this one has unusual staying power because three independent supply sources are feeding it at once.

The PE overhang clears only as fast as the 2018-22 vintages work through their fund lives, which is a multi-year process that the math guarantees will continue regardless of sentiment. The family carve-out wave is driven by a demographic transition that runs for a decade or more and does not care about deal cycles. The IBC channel is structurally maturing, with S&P's upgrade signalling that the improvement is durable rather than a one-year blip. No single catalyst closes all three windows simultaneously. A buyer who builds capability now, the carve-out execution muscle, the local distressed partnerships, the patient capital structures that survive a 713-day resolution timeline, is building against a supply curve that stays favourable for years.

The buyers who win this period will not be the ones who called the bottom of PE investment, because the bottom is unknowable and irrelevant to whether any individual asset is mispriced today. They will be the ones who recognised that a 33% drop in investment and a 30% drop in exit volume are not symptoms of a market to avoid but the signature of a market full of sellers who have run out of better options. India spent two years manufacturing motivated sellers across three channels at once. The deals are sitting there, in aging fund portfolios, inside family conglomerates, and on the IBC docket. The only question is who shows up with the patience, the local execution, and the cash to clear them.

Sources

1. Bain & Company India Private Equity Report 2026 — bain.com