One of the country’s top five large states in terms of its contribution to national income, Tamil Nadu always offered a large potential for financial investors including private equity and venture capital funds.

But, the emergence of the state as the fifth largest destination for PE/VC deals, since January 2005, has been against the odds of a conservative profile of South India-based business families who typically tend to take small business steps and are largely cautious of bringing stakeholders from outside. At the same time, it also represents the rise of a new set of entrepreneurs seeking cash and expertise of PE/VC funds for giving shape to their business plans.

It was no surprise then that VCCircle decided to put together the Chennai edition of its Investment Forum, a common platform for investors and entrepreneurs to leverage deal-making opportunities in Tamil Nadu. The day-long conference, the first-ever in the southern city, is exclusively focussed on deal-making, valuation trends, access to capital, future outlook and attractive investment areas in the state.

Over the last five years, beginning January 2005, PE/VC deals worth $2.5 billion spread across as many as 155 transactions have been struck by companies headquartered in Tamil Nadu, as per VCCircle data. This makes it the fifth largest state, behind Maharashtra, Karnataka, Delhi and marginally lagging Andhra Pradesh, in terms of volume of PE/VC deals over the last five years in India.

The maximum number of transactions has been in the IT/ITES space closely followed by manufacturing and banking & financial services sector. These three sectors alone account for half of all PE/VC deals in Tamil Nadu since 2005. Other prominent sectors in terms of volume of transactions include logistics, healthcare services, engineering, digital media, hospitality & travel and media & entertainment.

In terms of value of transactions, banking & finance lead the charts with close to $697 million investments from PE/VC firms over the last five years. It is followed by manufacturing, IT/ITES, telecom, healthcare services, logistics and energy accounting for deals worth $100 million or more.

Among the notable transactions in the state include C Sivasankaran’s Siva Ventures investing $230 million in new telecom player S Tel, Japan’s Nomura Holdings’ $150-million deal in India Cements, buyout giant TPG’s twin investment in two separate firms of Shriram Group—Shriram Retail Holdings that controls the consumer finance arm besides Shriram Holdings (Madras), the holding arm of the group’s commercial vehicle finance business.

Apax Partner’s $104-million deal to pick a minority stake in Apollo Hospitals was another large transaction in the state. This also implies a large number of transactions were in the small and mid-sized space.

The slowdown in PE/VC transactions in the country since early 2008 did have an impact on deal activity in the state. The volume of transactions in the state since January this year has come down to 18 after hitting an annual high of 43 in the whole of 2008. On the one hand, it shows capital flow from PE/VC firms has been tight, it also brings hope as the higher number of deals in 2008 could be a sign that companies are opening up to the idea of attracting PE/VC funds as an alternate source of funds.

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