PE investments in India up by 19% in Q4 2013 as against Q3 2013

PE exits doubled in Q4 2013; exit value down 30% in value and down 47% in volume terms y-o-y

Private equity investments in the fourth quarter of 2013 touched $2.12 billion in value terms up 19% compared to the trailing quarter and 67% in the same quarter of 2012. PE invested $2.12 billion across 76 deals, said a PwC report.

According to PwC MoneyTree India report, PE exits doubled with an exit value of $1.13 billion from 20 deals in Q4 ’13. With 37 deals worth $959 million in Q4 ’13, the IT and ITeS sector is yet again the leader in terms of value and volume.

“The fourth quarter proved to be an exciting quarter for PE investment with total flows exceeding $2 billion—the first time since post—Q4 2007. Almost 80% of the deal value was in the IT and Healthcare space. Activity levels in other sectors were largely muted. Whilst it is difficult to attribute any one specific reason for this sudden surge in deals, it just proved the point that investors, whilst closely watching the run-up to the elections, remain cautiously positive about the investment thesis for India. The hope is that the momentum witnessed in Q4 will continue to remain in early 2014,” said Sanjeev Krishan, leader, Private Equity, PwC.

Since 2007 the trend for PE investments in the last quarter (Q4) is to be below $2 billion despite a higher volume of deals; however, 2013 has been a contrast to this. The findings are part of the PwC MoneyTree India report, a quarterly study of private equity investment activity based on data provided by Venture Intelligence.

Though, the investments value was up by about 19% after a dull third quarter, the number of deals dropped by 19% – $1.78 billion from 94 deals. Even when compared to the same period last year, i.e., Q4’12, there has been an increase of 74% in deal value despite a 30% decrease in the volume of deals. In Q4 ’12, the value of investments was $1.22 billion from 109 deals.

(ITeS) sector is yet again the leader in terms of value and volume. The sector has shown a 41% increase in value with two additional deals in this quarter as compared to the previous one. When compared to the same period last year, the sector has grown over five times in value despite a 10% drop in the volume of deals.

In Q4 ’12, the investments in this sector were worth $176 million from 41 deals. Within the IT and ITeS sector, the IT services sub-segment recorded the highest investment worth $563 million from five deals. The online services sub-segment recorded the second highest investment among the sub-segments, with a total of $284 million invested in 19 deals - which is the highest in terms of volume this quarter.

Sandeep Ladda, leader, Technology, PwC said, “With the US market showing signs of recovery and with the increased attractiveness in the e-commerce space in India, there were not only an increased number of deals compared to the previous quarter, but also a substantial jump in the value. The steady increase of investments over the past few quarters in the Technology sector reinforces that this sector continues to be very attractive to the PE/VC community, and thus hints at the risk/reward relationship that it has to offer.”

The healthcare and life sciences sector has shown a surge in the investments with an increase of almost four times in value, from $191 million in the previous quarter to $729 million this quarter. The volume of deals remained the same. Even when compared to Q4 ’12, the value of investments has grown by about four times with two additional deals.

The BFSI sector ranks third in terms of value and volume. The sector witnessed investments worth $88 million from five deals, an 8% increase in value from the preceding quarter despite a 44% drop in the deal volume in this quarter. In Q3 ’13, BFSI investments were $81 million in nine deals. However, as compared to the same period last year, the investment value has grown by 15% despite a 38% drop in the number of deals this quarter.

Apart from the above discussed sectors, the other key sectors like energy, textiles and garments and manufacturing, have shown a significant drop in the value of investments in this quarter when compared to the previous quarter.

In Q4 ’13, private equity investments in the late stage recorded the highest value, seeing $757 million from 22 deals - a significant growth rate of 61% in value and 83% in volume of deals. In Q3 ’13, the investments stood at $472 million from 12 deals. Buyout deals, with an investment of $548 million from two deals, ranked second in terms of value. However, the value and volume of investments have dropped by 10 and 78%, respectively, as compared to the preceding quarter.

Private equity exits

The exit activity in the final quarter of 2013 has doubled in terms of value as compared to the prior quarter despite the same number of deals. The exits were worth $1.13 billion from 20 deals as compared to $518 million from 20 deals in Q3 ’13. Compared to Q4 ’12, the exits have shown a decline of 30% and 47% in value and volume, respectively. In Q4 ’12, there were 38 exits worth $1,620 million.

The majority of the exits in this quarter came from the healthcare and life sciences and the IT and ITeS sectors which together contributed around 69% of the total exit value and 50% of the total volume.

The healthcare and life sciences sector tops the list of PE exits, in terms of both value and volume, with six deals worth $513 million.  This constitutes 45% of the total deal exit value. The IT and ITeS sector stands second, in terms of both value and volume, with four deals worth $264 million.

The preferred mode of exit in this quarter has been through secondary sale (nine exits). The other modes were strategic sale (five exits), public market (four exits) and buyback (two deals). In terms of value, exit through secondary sale fetched the highest value, worth $802 million (about 70% of the total exit value) in Q4.