Private Equity/Venture Capital Investments could set a Record in 2018

Si TeamPrivate equity and venture capital investments in India till July this year had crossed $16.9 billion, a 45 per cent rise from the year-ago period, while investments in July stood at $1.5 billion across 63 deals.

Investments in July were 23 per cent higher in value compared with July 2017. Exits during the month recorded $376 million across 11 exits with one $100-million plus deal each in the financial services and pharmaceuticals sectors, according to EY’s PE monthly Deal Tracker.

Recently, Freshworks and Swiggy joined the unicorn club by raising capital at a valuation of over $1 billion.

“Notwithstanding headwinds at global as well as the domestic level, Indian PE and VC investment activity has maintained a steady run rate so far, clocking an average of $2 billion worth of investments per month in 2018. As of now, we see no reason to alter our initial projections made in the beginning of 2018. It appears we are well on track to witness another record year for PE and VC investments in India,” said Vivek Soni, Partner and National Leader Private Equity Services at EY.

“Exit activity, on the other hand, has been somewhat dampened by the volatility seen in the stock markets over the recent past, especially in the mid- and small-cap spaces. Nonetheless, there is a good amount of deal activity underpinned by the secondary and strategic sale segments and we expect the second half of 2018 to be as good as the first half for exits as well,” he added.

Deal volume

In terms of deal volume, investment activity rose 50 per cent to 63 deals in July 2018 compared with 42 in July 2017.

Breaking away from the recent trends, July 2018 recorded fewer large size deals. There were three deals of value less than $100 million (cumulatively worth US$402 million) in July 2018, accounting for only 26 per cent of total investments against 65 per cent investment share in June 2018.

The fewer number of large deals in July is no indication of a trend, as there are many mega deals in the works, the most prominent being the recently announced US$4.2-billion acquisition of Arysta LifeScience, an agrochemicals company by UPL.
TPG was the most active PE investor in July 2018. It announced four deals, including $105 million investment in Sai Life Sciences for a 35 per cent stake, US$40 million investment in e-commerce platform Livespace and co-investments with a group of other investors in online ticketing platform Bookmyshow and an NBFC, Five Star Business Finance Ltd.

Stages of investment

In terms of stages of investment, expansion/growth investments continued to lead in terms of value of investments, with 20 deals worth $633 million, 23 per cent higher compared with July 2017; while startups ranked at the top in terms of number of deals (33 deals).
July saw $431 million invested in startups, the highest monthly value in 2018. Buyouts on the other hand, recorded the lowest monthly value of investments in 2018, with two deals worth $100 million.

From a sector point of view, real estate ($669 million) and financial services ($299 million) were the most active sectors in terms of value of investments. In terms of number of deals, technology with 16 deals was the leader.
Infrastructure and real estate sectors recorded $392 million investments across five deals. The largest deal in these sectors was KKR’s $176 million credit investment in real estate projects of Lodha and Shapoorji Pallonji.

July 2018 recorded eleven exits totalling $376 million, a slight increase of 6 per cent compared with July 2017 ($352 million across eight exits).
Open market exits led with deals worth $156 million across six exits followed by two secondary exits worth $105 million. There was one PE-backed IPO in July 2018, which saw TA Associates part exiting its stake in TCNS Clothing, which owns the women’s wear brand “W”, for $72 million.

From a sector perspective, financial services and pharmaceuticals were the leaders with one deal each of value $110 million and $105 million, respectively. The largest exit in July 2018 saw IFC sell its 4 per cent stake in AU Small Finance Bank Ltd for $110 million.

July 2018 witnessed five fund raises worth $807 million. There were $1,268 million worth fundraise plans announced in July 2018. The largest fundraise of $550 million was made by Indospace for investments into industrial parks.