The outlook for private equity in India has never been brighter. It is reported that more than half-a-dozen PE funds are set to start the process to raise a combined US$2 billion from foreign and local investors. This confidence is riding on the bullish wave and euphoria that the mandate for a stable government has brought to the market following the national elections.
In 2013, the IT sector attracted most investments, featuring three of the top five deals of the year in India. India's largest private equity deal was the US$1.2 billion investment in Bharti Airtel from Qatar Foundation Endowment. The second largest deal of the year in the country was the acquisition of Alliance Tire by KKR & Co for US$470 million. The year 2013 witnessed a total of 696 deals, up from 551 in 2012, with IT/ITES and healthcare most favored. Other sectors that showed impressive growth in terms of deal volume and value were media and entertainment along with BFSI (Banking, Financial Services and Insurance).
India has been witnessing a slow-down in the private equity investment activity since the past few years, largely driven by the fallout of the global economic slowdown and also the slow pace of domestic growth and lethargy in government-led reforms and policies. Investors have their hopes pinned on the new government at the center, which they believe will be influential in the creation of investor-friendly policies. The hope of development and growth has been fueling the economy and capital markets with the benchmark stock market indices hitting all-time highs.
Already PE firms in India invested about US$2.27 billion across 89 deals during the January-March 2014 quarter. There were five PE investments worth US$100 million or more during the first quarter of 2014, compared to just one such transaction in the same period last year.
The top two PE transactions during January-March 2014 period involved Canadian and Middle Eastern investors signing up to invest in infrastructure operating companies in India. Other major investments were seen in the IT & ITES industry, including the US$260 million buyout of Aditya Birla Group's BPO unit Minacs by CX Partners and Capital Square Partners; the US$143 million raised by e-commerce firm Snapdeal.com and General Atlantic's US$100 million commitment to healthcare software firm Citius IT.
Another key sector that has attracted attention of private equity firms is real estate. The real estate sector recorded INR 2,800 crore in private equity investments during the first quarter of 2014, an increase of 28% compared to the previous quarter and nearly 2.5 times the investment in Q1 2013, according to real estate consultancy Cushman & Wakefield. In February 2014, Canadian Pension Plan Investment Board (CPPIB) announced that it was entering what it called a strategic alliance with India's Piramal Enterprises for investment in residential projects across the nation. The two partners will reportedly make an initial contribution to the tune of US$250 million each. Oman's State General Reserve Fund, GIC and Temasek Holdings, Singapore have also committed US$200 million to HDFC's Real Estate Fund. Housing has always been one of India's prime concerns across all its income groups. This trend gains further traction with the new Indian Union minister Mr. Venkaiah Naidu announcing his vision of housing for all by 2020.
However, the biggest challenge for private equity in India remains the issue of exits. PE funds with vintage investments had been desperately scouting for exiting past investments but were struggling to do so, on account of a poor economy and stale secondary market. A few PE funds have been known to take haircuts to the extent of 80% to 85% markdowns on their investments in some cases. Even currently, though the Indian stock market has rallied, the fact is that the Rupee continues to remain weak. One will need to see a 35% to 40% appreciation in the Rupee to see meaningful profits. The stock market, coupled with strong inbound M&A interest and secondary transactions between PE firms have provided successful exits in recent times. But, the crucial fact remains that the IPO market has not opened up for any sustained period.
Overall, the private equity industry in India will see more activity than previous years. There will be more funds that will have success at raising fresh rounds. For instance, Everstone Capital, ICICI Infrastructure Fund and Multiples Private Equity have recently launched road shows for new funds. There will be more clarity in public policy and reforms, which will encourage investments in sectors such as infrastructure. What remains to be seen is how PE funds are able to manage their portfolio company exits. A few successful exits will trigger further confidence amongst PE investors/Limited Partners and will rekindle the private equity trend in India.
In 2013, the IT sector attracted most investments, featuring three of the top five deals of the year in India. India's largest private equity deal was the US$1.2 billion investment in Bharti Airtel from Qatar Foundation Endowment. The second largest deal of the year in the country was the acquisition of Alliance Tire by KKR & Co for US$470 million. The year 2013 witnessed a total of 696 deals, up from 551 in 2012, with IT/ITES and healthcare most favored. Other sectors that showed impressive growth in terms of deal volume and value were media and entertainment along with BFSI (Banking, Financial Services and Insurance).
India has been witnessing a slow-down in the private equity investment activity since the past few years, largely driven by the fallout of the global economic slowdown and also the slow pace of domestic growth and lethargy in government-led reforms and policies. Investors have their hopes pinned on the new government at the center, which they believe will be influential in the creation of investor-friendly policies. The hope of development and growth has been fueling the economy and capital markets with the benchmark stock market indices hitting all-time highs.
Already PE firms in India invested about US$2.27 billion across 89 deals during the January-March 2014 quarter. There were five PE investments worth US$100 million or more during the first quarter of 2014, compared to just one such transaction in the same period last year.
The top two PE transactions during January-March 2014 period involved Canadian and Middle Eastern investors signing up to invest in infrastructure operating companies in India. Other major investments were seen in the IT & ITES industry, including the US$260 million buyout of Aditya Birla Group's BPO unit Minacs by CX Partners and Capital Square Partners; the US$143 million raised by e-commerce firm Snapdeal.com and General Atlantic's US$100 million commitment to healthcare software firm Citius IT.
Another key sector that has attracted attention of private equity firms is real estate. The real estate sector recorded INR 2,800 crore in private equity investments during the first quarter of 2014, an increase of 28% compared to the previous quarter and nearly 2.5 times the investment in Q1 2013, according to real estate consultancy Cushman & Wakefield. In February 2014, Canadian Pension Plan Investment Board (CPPIB) announced that it was entering what it called a strategic alliance with India's Piramal Enterprises for investment in residential projects across the nation. The two partners will reportedly make an initial contribution to the tune of US$250 million each. Oman's State General Reserve Fund, GIC and Temasek Holdings, Singapore have also committed US$200 million to HDFC's Real Estate Fund. Housing has always been one of India's prime concerns across all its income groups. This trend gains further traction with the new Indian Union minister Mr. Venkaiah Naidu announcing his vision of housing for all by 2020.
However, the biggest challenge for private equity in India remains the issue of exits. PE funds with vintage investments had been desperately scouting for exiting past investments but were struggling to do so, on account of a poor economy and stale secondary market. A few PE funds have been known to take haircuts to the extent of 80% to 85% markdowns on their investments in some cases. Even currently, though the Indian stock market has rallied, the fact is that the Rupee continues to remain weak. One will need to see a 35% to 40% appreciation in the Rupee to see meaningful profits. The stock market, coupled with strong inbound M&A interest and secondary transactions between PE firms have provided successful exits in recent times. But, the crucial fact remains that the IPO market has not opened up for any sustained period.
Overall, the private equity industry in India will see more activity than previous years. There will be more funds that will have success at raising fresh rounds. For instance, Everstone Capital, ICICI Infrastructure Fund and Multiples Private Equity have recently launched road shows for new funds. There will be more clarity in public policy and reforms, which will encourage investments in sectors such as infrastructure. What remains to be seen is how PE funds are able to manage their portfolio company exits. A few successful exits will trigger further confidence amongst PE investors/Limited Partners and will rekindle the private equity trend in India.
SHARE
