Last four years has seen India move closer to more mature PE markets

Last four years has seen India move closer to more mature PE markets

By Vivek Soni

  • 05 Oct 2021
Last four years has seen India move closer to more mature PE markets

Over the last decade, the Indian PE/VC industry has come of age, growing at a CAGR of 19% and aggregating over $230 billion in investments and we expect the coming decade to be an even better one for the industry. The start of this decade has been spectacular with PE/VC investments crossing $50 billion within the first 9 months, surpassing the previous all-time high. 


In the last decade, the PE/VC investment mix has changed significantly, progressing from primarily minority growth investments into one in which large buyouts have become a significant part of the overall PE/VC investment pie (by dollar value). 


Buyouts have recorded significant growth in the last decade, growing more than 10-fold in deal value. This growth in buyouts has been a defining feature of this decade, one that indicates India’s emergence as a serious destination for large PE/VC investments. 

Share of buyouts by value grew from around 10% to over 25% of the total PE/VC investment pie. In the last four years, not only has the buyout deal count increased, but also the average buyout deal size has increased significantly, which is a testament to the growing confidence of PE/VCs to deploy larger sums of capital in complex control transactions. 

The last four years has seen India move closer to more mature PE markets, wherein buyouts dominate PE/VC investments by value with each year recording buyouts in excess of $10 billion. 


An analysis of buyout deals over the past decade demonstrates the increase in average buyout deal value, with 48% of buyout deals being over $100 million in 2020 and 2021 compared to 21% buyout deals above $100 million in 2011. 

The data shows a 10-fold increase in the total value of buyouts with deals greater than $500 million accounting for more than 70% of deals by value in 2020 and 2021 compared to no such deals till 2013. There were four $1 billion plus buyouts in 2021 (till date) and 2020 and two each in 2019 and 2018. 

Similarly, there were seven $500 million plus buyouts in 2021 (till date), four in 2020, eight in 2019 and three in 2018. Infrastructure and real estate sectors have accounted for 56% of all buyouts by value and 39% by volume in the past decade. 


Technology, financial services, pharmaceuticals, and consumer and healthcare are amongst the other top sectors for buyouts. 

Factors that are contributing to this rise in buyout deals include:

► Succession-related issues in family-owned businesses and promoter willingness to mentor the business while keeping minority investment


► Companies/conglomerates hiving off non-core businesses or monetising assets to pare debt

► Significant increase in the number of VC-backed companies, whereby financial investors together hold over 51% equity after four-to-five rounds of funding



The increase in buyouts is also helping improve the exit activity as PE funds gain more control over the exit process. Emerging out of the GFC, exits were one of biggest pain points for the Indian PE/VC industry. Exits remained subdued in the first half of the decade at around $3 billion per year. 

Some of the challenges that have plagued the Indian exit environment in the past include:

  1. Low corporate governance in investees resulting in mismatch between actual performance vs. reported performance making valuations difficult and investors circumspect
  2. Very competitive environment for investments with many funds chasing few quality assets
  3. Regulatory uncertainties on taxation policies and terms of engagement have impacted return expectations
  4. Relative absence of domestic pools of capital

While some of these challenges are being resolved, there remains substantial scope for improvement.

Post 2015 there was a pickup in exit activity which doubled to over $6 billion in 2015 and reached a high of $27 billion in 2018 which recorded India’s biggest PE/VC exit of $16 billion (Flipkart-Walmart deal). PE/VC exit activity in 2021 has already surpassed the previous high to a record $33 billion in value, with almost 50% coming via sale to strategic (corporate) buyers.

Open market exits have dominated the PE/VC exit activity in India over the previous decade accounting for more than a third of all PE/VC exits by value and volume. However, strategic and secondary exits have also emerged as a viable exit option for investors over the recent years.

Evolution of new investment structures like InvITs, REITs, and SPACs has broadened exit options for PE/VC investors. Also, with India’s increasing attractiveness as an investment destination, new pools of capital like sovereign wealth funds, pension funds, family offices, and dedicated secondary funds have entered India, providing more opportunities for exit to early investors. 

Further, large corporates have also emerged as buyers of PE-funded startups, especially in the e-commerce and technology sectors, as they seek to strengthen their capabilities in new emerging domains to complement their legacy investments in bricks-and-mortar businesses.

Large, multi-billion dollar exits to strategic buyers are expected to remain the main driver in the coming month, while exits via secondary deals, open market sale of listed positions as well as IPOs are also expected to remain strong. 

A positive response by the equity markets to the Zomato IPO and the soon-to-follow IPOs by other VC-funded new-age unicorns is expected to catalyse even more investment and exit activity in the Indian startup ecosystem. ReNew Power became the first-ever Indian company to list via the SPAC route. 

This potentially opens up a new fundraising option for Indian companies as well as an additional exit avenue for early investors. 

With strong momentum in vaccinations and the government’s push for reforms, we expect the economic revival to be strong. This aided with easy liquidity globally, we expect PE/VC investments and exits to further pick up steam over the medium term.

Vivek Soni is Private Equity Leader at EY. Views are personal.

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