PE investments dip 16% in June quarter to $3.6 bn

Sovereign wealth & buyout funds step up activity even, as mega deals dry up for internet & mobile firms

Private equity (PE) entities invested $3,602 million across 129 deals during the quarter ended June, as against $4,278 million across 169 transactions in the same period last year, about 16 per cent less.

According to Venture Intelligence, the investment was seven per cent lower than the immediate previous quarter ($3,890 million across 169 transactions).

The latest figures take the PE investments in the first six months of 2016 to $7,492 million across 298 transactions — comparable to the first six months of 2015, which had $7,340 million across 370 deals. These figures include venture capital (VC) investments, but exclude PE investments in real estate.

Only six PE investments worth $100 million or more were reported during the second quarter of 2016, compared to 11 such in the same period last year and 12 during the immediate previous quarter.

The largest PE investment announced during the second quarter was Blackstone’s $1.1-billion buyout of the majority stake held by US-based Hewlett Packard Enterprise in information technology services and business process outsourcing entity Mphasis, which triggered an open offer to public shareholders of the target company.

Singalore’s sovereign wealth fund GIC, Abu Dhabi’s ADIA and Malaysia’s Khazanah participated in mega investments. The renewable power-focused Greenko Group raised $230 million from ADIA and GIC, while analytics BPO firm Fractal Analytics raised $100 million from Khazanah. Canada-based Fairfax Group committed $300 million to chemicals manufacturer Sanmar Group (on the heels of its $321-million bet in Bangalore International Airport, announced in March).

“Mega deals in internet and mobile companies were noticeable by their absence in the latest quarter — even compared to the immediate previous one, when BigBasket, CarTrade and ShopClues had attracted investment of over $100 million each,” noted Arun Natarajan, founder of Venture Intelligence. “Despite the cooling off in the internet and mobile sectors, as well as more recent international developments like Brexit, etc., the increasing commitments being made by truly long-term investors like sovereign wealth funds, pension funds and buyout funds portend well for the second half of the year,” he added.

Led by the Mphasis and Fractal Analytics deals, IT and IT-enabled services (ITeS) companies accounted for 43 per cent of the PE investment pie in the second quarter (Q2), attracting $1,564 million across 86 transactions. However, despite the blockbuster Mphasis transaction, the value of IT and ITeS investments in Q2 was down 17 per cent from the $1,889 million across 101 deals in the same period in 2015 (which saw massive investments in internet and mobile companies, led by Ola, Snapdeal and Quikr).

Buyout investments at $1,503 million (across five transactions) was the only segment to witness a spike-up over the same period in 2015.

VC entities made 94 investments worth $324 million in Indian companies during the three months ending June. The investment activity in the second quarter was 16 per cent lower compared to the same period in 2015 (112 investments worth $491 million), shows Venture Intelligence data. The activity level was also nine per cent lower from the earlier quarter (103 deals worth $299 million).

VC investments during Q2 were led by fashion e-tailer Voonik, which raised a $20-million second round led by existing investor Sequoia Capital India, followed by a $16-million third round investment in playschool company KLAY Schools (led by Peepul Capital with participation from existing investor Kaizen PE).

Other start-ups that attracted significant capital during Q2 included health care products e-tailer 1MG (a $15-million second round from Sequoia Capital India, Maverick Capital and Omidyar Network) and online tax filing company Cleartax (it attracted $12 million from SAIF Partners, following a $2-million round from Sequoia Capital India and US-based Founders Fund).

It may be noted that as VC-type investments cap at $20 million a round under Venture Intelligence definitions, follow-on investments raised by companies like NestAway, Helpshift, etc. are not included in this analysis.

IT and ITeS companies, at 73 deals worth $223 million, attracted 78 per cent of the VC investments (69 per cent in value terms). Health care and life sciences companies were a distant second, attracting six investments worth $25 million. IT and ITeS investments during the latest quarter were, however, down from the 81 deals recorded in Q2 of 2015 and 77 deals in Q1 of 2016.