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PE VC deal: Indian PE/VC deal activity surpassed growth witnessed by global peers in 2021: Study


NEW DELHI: Indian Private Equity reached new heights in 2021 with record deal activity and a complementary acceleration in exit momentum, with investments reaching $70 billion and deal volume (number of deals) increasing by 87% over 2020. However, after an exuberant year for both deal activity and exits, 2022 is expected to witness a tapering in the pace of activity as the gains of last year are consolidated.

A post-Covid 4x acceleration in growth equity, coupled with larger cheque sizes across deals highlights the continued confidence in India’s growth story and a coming of age of the private equity ecosystem. The ‘India Private Equity Report 2022’ was released by Bain & Company in collaboration with Indian Venture and Alternate Capital Association (IVCA).

In a statement, Karthik Reddy, Chairperson, IVCA and co-founder and managing partner, Blume Ventures said, “2021 was a remarkable year for the Indian PE-VC industry with investments reaching approximately $70 billion for the first time. These record flows demonstrate incredible investor confidence in India’s long term growth opportunities, coupled with a supportive government and regulatory reforms. The year also saw record exits. We are certain that this is just the preview for a strong decade ahead where PE and VC will shape Indian entrepreneurship and enterprise like never before.”

Investments: A heated market

2021 saw a record deal flow of $70 billion, in over 2,000 deals with an 87% increase over last year’s volumes. The expansion in deal volumes has largely driven the growth in total deal value, with minimal contribution from deal size expansion. Indian investments grew by 96% over 2020 (excluding the mega deals of Jio Platforms and Retail). Coupled with the flight of capital away from China due to political uncertainties, the growth helped India increase its share of the overall Asia-Pacific (APAC) market—in a signal of a trend expected to continue.

The number of large cheque size investments also witnessed a significant increase and the year saw 11 investments worth greater than $1 billion with Flipkart, Hexaware and

being the among the largest deals, compared to six in 2020. Much of 2021’s deal activity was in consumer tech and IT/ITES, an indication of the share of investments growth driven by the tech and internet sectors. The two sectors combined represented more than 60% of the year’s deal value, at nearly $44 billion–more than 2020’s overall investment value (ex-Jio and Reliance).

Sectors in focus: IT/ITES and healthcare expand

IT/ITES saw investments of $14.2 billion in 2021, growing by $10.3 billion or 255% over the previous year. The sector’s attractiveness has picked up due to post-Covid shifts in business operations, the need for business continuity amidst uncertainties, and a pivot to digitally enabled models focused on improving unit economics. After Baring’s investment in Virtusa in a $2 billion deal in 2020, the year 2021 saw multiple deals of bigger ticket sizes, such as Carlyle-Hexaware, Blackstone-Mphasis, Advent- Encora and Baring’s investments in Hinduja Global Solutions and Straive.

“In 2021, the Indian private equity ecosystem bounced back from 2020’s Covid-driven restraints, growing faster than most major economies, including China, with 96% growth over 2020. This year, we anticipate a tempering of pace in investment activity as macro and micro trends converge, but see this as an opportunity for the consolidation of last year’s gains, which should make India witness annual PE- VC deal values of around $50 billion more frequently. India should seek to consolidate its position as the market of choice for investors as the investment and exit landscape demonstrates maturity,” said Arpan Sheth, Partner, Bain & Company and co-author of the report, in a statement.

The ESG opportunity: A new paradigm for private equity

Funds increasingly view ESG criteria as a core consideration in investment decisions. Bain & Company research found that Indian funds expect ESG considerations over their PE AUM to grow to 90% in five years from now, up from 39% around five years ago.

ESG adoption by private equity is a key shift towards meeting Net Zero and Responsible Investing goals set by the country, but ESG is increasingly recognised for its role in value creation for private equity.

Exits: Hitting a peak

In the most celebrated milestone for the year, exits worth more than $36 billion were unlocked in 2021, quadrupling fund exits over 2020’s ~$9 billion. Strategic sale continued to be the most dominant route of exit, with almost 50% of all exits over the last few years. The size of exits grew faster than the exit volumes, with large exit volumes (of $100 million+) almost tripling and exit size expanding across sectors.

In response to the relaxation of norms for loss-making firms to list on the public bourses by SEBI, public market exits of $11 billion took place, expanding by $7 billion over 2020’s value. This is further emboldened by the 95% YoY growth seen in average value of exits via the public market route.

Fund landscape: Evolving strategies for value creation

Funds are directing more capital towards buyouts with an increased preference for buyout deals with larger cheques. 2021 witnessed an expansion in buyouts deal value by 5x in as many years to reach $16 billion. Buyouts contributed more than 50% of the share of PE investments, growing from 25% in 2016. Traditional funds like Blackstone, Baring, Carlyle, Advent,

, and KKR have invested more than $1 billion each in buyouts over the last three years, with their outlay increasing over years.

Another finding of the report looks at how competition within funds and increased participation of limited partners (LPs) is driving up valuations and making deal sourcing and faster execution increasingly critical. Funds are shifting their strategy to adapt to these changes by expanding cheque sizes, investing in deeper target relationships, and increasing value-creation capabilities, especially by setting up portfolio teams. The Indian market has been attracting more investors over years, creating a balancing loop of return potential, and differentiated fund strategies are likely to emerge as funds work towards finding niche opportunities for superlative returns.

2022 investment trends and outlook

In the first half of the year, even as the bullish sentiment waned, more than $24 billion of PE-VC investments in 630 deals were recorded by May (vs. 775 for $19 billion in value by May 2021), riding on last year’s momentum. However, VC and growth equity have slowed significantly, with 20% lesser deals this year compared to last year’s run rate of 130 deals every month. Average VC cheque sizes have also declined, and consumer tech activity is the hardest hit by this slowdown. Private equity however has maintained strength.

An important reversal of trend that is expected to last is the dampening of the vigorous exit activity of 2021 which saw exits grow 4x to $36 billion. This year has seen exit activity of $5.9 billion so far, in a 56% decline over the last year’s activity over a similar duration—and the exit activity is expected to weaken further. The bearish sentiment in public markets coupled with the younger portfolios of top funds could see exits dip to pre-2021 stages again. Even though the pace of deals is slowing down, large funds continue to keep pace with their activity over last year, vindicating confidence in the fundamentals of the Indian market.



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