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Private equity and venture capital investments in India fell 23 per cent to $6.7 billion and exits – excluding Flipkart deal – declined 71 per cent on a year-on-year basis during the third quarter of this calendar year.
July-September period was the “most under-performing quarter” in 2018 both in terms of investments and exits. Nonetheless, year-to-date at $22.2 billion, PE/VC investments in India were higher by 17.4 per cent and with certain some large deals in the pipeline, the country is on track to surpass the previous year high, according to a study by EY India.
“PE/VC deal activity was strong in the first half of 2018. However, the third-quarter data and discussions with PE/VCs suggest that investors are turning cautious. Macro headwinds such as rising crude oil prices, depreciating rupee, and talk of trade wars have increased the uncertainty,” Vivek Soni, Partner and National Leader Private Equity Services at EY India, said.
Investments
Quarterly PE/VC investments declined 23 per cent in value terms compared with the previous year-ago quarter ($6.7 million vs $8.7 million in Q32017) despite a 29 per cent increase in the number of deals over the same period (178 deals vs 138 deals in Q32017). On a sequential basis, the quarterly decline in the value of investments was 11 per cent and 16 per cent compared with the second and first quarters, respectively.
The decline in investments was mainly on account of fewer large deals (deals with value greater than $100 million) in the third quarter of 2018.
During the third quarter, 13 large deals totalling $3.9 billion were recorded compared with 18 such deals in the previous year-ago quarter, totalling $7 billion. The second quarter of 2018 had recorded 25 large deals worth $6.1 billion, while the first quarter recorded 13 large deals totalling $5.7 billion.
Steady flow of large deals had helped each of the last four quarters record investments in excess of $7 billion. Though the trend has broken in the third quarter of 2018, there were a couple of large deals in the works that if concluded can add significantly to the overall investment tally for 2018.
These include, TPG’s and ADIA’s $1.2 billion funding of UPL for its overseas acquisition of Arystra and Westbridge, Madison and Rakesh Jhunjunwala’s $1-billion investment in Star Health and Allied Insurance.
Large deals during the reporting quarter include Softbank, Sequoia, and Lightspeed infusing $1 billion in OYO Rooms, KKR’s $530-million buyout of Ramky Enviro and AION-JSW’s $400 million buyout of Monnet Ispat.
From the point of view of type of investment, growth and private investment in public equity (PIPE) deals recorded a significant fall in investments. The third quarter recorded $2.6 billion in growth deals ($5.7 billion in 3Q17 and $3.5 billion in 2Q18) and $57 million in PIPE deals ($599 million in 3Q17 and $690 million in 2Q18).
Exits
Excluding the Flipkart deal at $1.3 billion, PE/VC exits fell 71 per cent during the quarter, making it the worst performing quarter in 2018 for exits. The decline was across most deal types both in terms of value and volume.
Though exits via strategic sale were the highest-ever at $16.1 billion (16 deals), it was mainly on account of the single large $16-billion Walmart-Flipkart deal. Exits via secondary sale (sale to other PE funds) recorded $390 million (7 deals), 73 per cent lower compared to 3Q17 in terms of value, the report said.
Fund raise
The quarter saw $2.6 billion in fund raises, 17 per cent higher compared with the previous year and the highest quarterly fund raise ever. Sequoia’s $695-million sixth fund and True North’s $600-million sixth fund were the largest fund raises in 3Q18. New fund raising plans announced in the quarter was at $4.3 billion.
Best quarter for start-ups
On the other hand, the third quarter was the best for start-up investments, since the second quarter of 2015, with deals worth $2.1 billion.
Buyouts also recorded healthy growth in the third quarter with $1.3 billion invested across nine deals compared with $920 million across six deals in the year-ago period. This takes the total value of buyouts in 2018 till date to $6.3 billion (32 deals), surpassing the previous record set in 2015 of $3.9 billion across 29 deals.
“With PE/VC dry powder of more than $40 billion awaiting deployment in India and the long-term secular growth forecast of about 7 per cent, we remain positive on the medium to long-term prospects of the Indian PE/VC industry,” Soni said, adding that there is a pipeline of large deals awaiting regulatory approval in the fourth quarter.
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