The economy in India is booming with a multitude of start ups and growing companies mushrooming across the country. The success of these firms is attributed to strong private equity (PE) and venture capital (VC) backing. Recently, in the second quarter of Calendar Year 2010 (April-June), India saw 57 PE deals worth USD 1.5 billion. Although the total deal value was lower compared to the prior quarter, the vibe seems optimistic. Nevertheless, in terms of number of deals, this is the second-highest quarterly performance in the previous seven quarters. The PE deal size in the second quarter was 70 percent higher compared to the average quarterly aggregate PE deals in 2009. On the whole, 2010 so far (Q1 and Q2) has recorded a cumulative deal value of USD 3.15 billion, having almost caught up with the past year’s deal value of USD 3.54 billion.
A continuous trend of active investments from Global PE firms was observed from Q4’09 into this year with seven of the top ten PE deal in Q2’10 from these entities. Domestic PE houses were also active in raising India-focused funds. Over 15 domestic PE houses either announced funds to be launched or raised capital worth USD 3 billion in the April-June quarter. Another trend seen in this quarter was a rise in exit activity with nearly half a dozen VC and PE firms preparing for at least a dozen portfolio exits as they reach the end of their investment horizons and cash in on an improving economy. One of the main reasons contributing to the mass exit is the handsome returns earned by the companies, which is somewhere between 3X to 7X. According to industry sources, there could be as many as 50 exits over the next six months.
Assisting the already improving economy is the increased interest of VC and PE players in small & medium enterprises. Funding institutions, which stuck to secular sectors like healthcare, pharma and agri industries during the economic downturn, are now seeking opportunities in Technology and Renewable Energy as well. After the grand success of E-commerce companies like Flipkart (Accel Partners-backed online book seller) more and more VC/PE firms are vying for a piece of such companies. Small-sized PE deals (worth about USD 10 million) continued to dominate PE activity in Q2’10, accounting for 45 percent of the total deal volumes.
Niche sectors like Clinical Research & Carbon Consulting have been receiving a steady flow of capital as well. Recently, PE firm Elephant Capital acquired an estimated 28.8-percent stake in ClinTec International, a clinical research organisation for USD 12.42 million.
Other sectors like information technology (IT) and IT-enabled services (ITeS) continued to see the maximum number of deals (11 deals worth USD 99 million, or around INR 460 crore). However, in terms of value, the top destination was Infrastructure. The highest investment amount in this space (INR 1,350 crore) was handed out by Olympus Capital to two of Tata Power’s coal special purpose vehicles, followed by Temasek’s USD 200-million investment in GMR Energy. Other large deals were TPG Capital’s USD 217 million fund injection in Shriram Capital and Temasek’s USD 175 million in the National Stock Exchange.
Despite the global uncertainty, PE activity in India sure seems optimistic!
Though private equity fund raising across the globe touched a seven-year low of $41.3 billion during the April-June quarter, hope is just around the corner, a report by research firm Preqin has said.
ReplyDeleteProviding the proverbial silver lining to the dark cloud, the report stated that the situation is likely to improve in the coming days with fund managers making fresh portfolio allocations.
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