Private equity exits near 4-year low

VC funding shrinks 88% to $334 mn; PE flow falls 49% to $2.3 bn in Jan-March

Exits by private equity (PE) and venture capital (VC) firms fell sharply in the January-March quarter of 2016 (Q1CY16) even as PE and VC firms did fewer deals and invested less money during the three months.

The deal value of exits slipped 70 per cent to $508 million in Q1CY16 from $1.7 billion in the year-ago period — the lowest in the past 15 quarter in value terms. Volume dropped from 89 deals to 39 during the quarter.

These are the findings of a report by VCCEdge, a financial research platform of the VCCircle Network, a News Corp firm, to be released next week. While VC funding was widely expected to slow down and make fund-raising difficult for start-ups, the drop in exit deals will not send alarm bells ringing.

''I will not read too much into the quarterly numbers for exits; the stock market has been soft since June last year and this has hit exit activity; a quarter is a short period and at times may show very high or very low levels of exits, which tend to get bunched up. We continue to see good exit momentum via secondaries and strategic sales, especially in the non-VC segment,'' says Sanjeev Krishan, transaction services and private equity leader, PwC India.

VC funding, which hit a peak during Q1CY15, fell sharply, with only 88 deals in Q1CY16 against 138 deals during Q1CY15. Deal value shrunk 88 per cent to $334 million in Q1CY16, compared to $1.8 billion seen in the same quarter a year ago. The share of VC funding dipped by about half to 14.6 per cent in Q1CY16.

PE inflows of $2.3 billion in the first three months of 2016 is 48.8 per cent lower than the inflow of $4.5 billion in the first quarter of 2015. Even if one compares sequentially with Q4CY15, the deal inflow is down 50.7 per cent, indicating a lean period in deal activity, which had hit a peak in Q3CY15.

Mean deal amount slipped to $11.9 million in Q1CY16, compared with $15 million a year ago. Median deal figure was also down to $0.97 million in Q1CY15, compared with $1.5 million a year ago.

Angel and seed investments, however, grew in volume but slowed in value terms. Deal volume was up 36.2 per cent to 188 deals in Q1CY16 from 138 deals a year ago. Deal value slipped 32.5 per cent to $58 million during the period under review.

The top 10 deals accounted for 66.9 per cent of the total PE capital invested in Q1CY16. Equity markets weren’t supportive during the quarter. Some 27 companies raised $499 million during Q1CY16, compared to 30 companies that raised $1.2 billion in Q1CY15.

Merger and acquisition (M&A) deals bucked the trend in PE. The quarter saw 211 mergers And acquisitions deals worth $8.7 billion — 85.7 per cent more than Q1CY15 even as deal volume declined 14.5 per cent.

Deal value picked up for domestic and outbound deals, while inbound deals slipped significantly by 71.1 per cent during the quarter.

Deal volume slipped the highest for inbound deals during the quarter, witnessing a decline of 47.6 per cent to 22 deals.

Financials, industrials, consumer discretionary, information technology, and healthcare were the top five sectors to attract significant private equity capital during the quarter.

India’s financial capital, Mumbai, continues to be a hotbed for M&A while Bengaluru outpaced Mumbai for private equity activity, followed by Delhi and Gurgaon.