Private equity (PE) exits hit a five-year low with deal volume and value falling 18%, led by a dip in liquidity and higher selling price expectations, according to India Investment Ecosystem Report 2021.
The report, launched by IIFL Wealth in association with VCCedge – the data research platform of VCCircle, said, “…this decline is a reflection of reduced investor interest amid COVID-19 led weak economy. IT dominated in PE exits as well, followed by consumer ciscretionary.”
“Investors remained cautious due to valuation concerns…The biggest exit included a stake sale in SBI Cards and Payment Services Ltd. by US private equity major Carlyle Asia Partners IV L.P. for $1.66 billion and Sona Blw Precision Forgings Ltd. by Blackstone Advisors India Pvt. Ltd. for $722.15 million,” it highlighted.
Of the total 10 exits, seven deals happened through the open market transactions. Open market PE exits dominated with a 43.82% increase on-year, benefiting from offering investors to offload stakes in listed investments.
The top ten deals accounted for 58.31% of the total value of exits. “The exit was primarily focused on synergizing operations by selling a stake in the current portfolio. Furthermore, open market transactions dominate the exits, which are used to harvest previous investments by taking advantage of the bull market,” the report said.
The first half of FY2022 (April to September) recorded 1003 private equity deals worth $31 billion while exits witnessed a total of 92 deals worth $4 billion (about Rs 30,200 crore) exit value favorable for investors to unlock their investments.
Financial sector had the highest exit value of $2.80 billion while the highest growth in deal value was consumer discretionary at 154% with big-ticket pull out in exit. Consumer staples and healthcare, on the other hand, remained muted, with deal value traction of 46% and 54%, respectively.
PE and VC deals
PE deal value spiralled up 41% to $44 billion, depicting the momentum gained in late 2020 and giving a bullish view over continued robust foreign inflows. However, there was a marginal 7% decline in deal activity from the same period last year amid lockdown measures.
Angel/seed funding remained buoyant in the fiscal year so far, while venture capital recorded a five-year low. Angel/seed investments continued to dominate with a 56.49% share with record 818 deals, while PE contributed a 56.65% share in the overall deal value, the report noted.
Similarly, pre-IPO funding is in vogue, with tech companies going public, allowing meaningful allocation and working capital requirements and vested interest among investors.
In volume terms, IT continued its five-year dominance with a 12.63% Y-o-Y increase in deal activity, benefiting from increased digital adoption.
Major big-ticket deals were from Jio Platform and Byju's, which attributed 2x growth in deal volume. On the contrary, the pandemic has bogged down asset-heavy industries, such as materials and industrials.
“While the VC / PE ecosystem took a decade to evolve into its current form, we believe that the next leg of its growth is going to be far more explosive and accelerated," the report added.