PE investment up three times in first half

PE players, advisory firms say the second half will see the same level of activity.

Private equity (PE) investments are back. In the first half of calendar year 2010, total PE investments touched $4,571 million (around Rs 21,380 crore) across 138 deals (excluding real estate). This was a three-fold jump over the $1,508 million (around Rs 7,057 crore) invested in 111 deals during the same period last year, said a study by Venture Intelligence, a research service focused on PE and merger and acquisition (M&A) activity in India.

In the quarter ended June 30, PE firms invested about $2,364 million (around Rs 11,063 crore) in 67 deals. This was 2.6 times more than in this period last year (which saw $890 million being invested in 51 deals) and also higher than the quarter prior to that ($2,207million in 71 deals). With this, the amount invested by PE firms in India has climbed for the fifth successive quarter.

PE players and experts say the second half of 2010 will see an equal level of activity.

“The second quarter of 2010 saw the appetite for large deals that emerged in the previous quarter being sustained. For the first time since the third quarter of 2008, the latest quarter saw as many as seven investments of over $100 million,” said Arun Natarajan, MD & CEO of Venture Intelligence.

The information technology (IT) and IT-enabled services (ITeS) sector continued to see the maximum number of deals (11 deals worth $99 million, or around Rs 460 crore). But, in terms of value, the top destination was the infrastructure sector. Olympus Capital invested $300 million in Tata Power’s special purpose vehicles for Indonesian coal mines, followed by Temasek’s $200-million investment in GMR Energy. Other large deals were TPG Capital’s $217 million investment in Shriram Capital and Temasek’s $175 million investment in the National Stock Exchange.

“In terms of value, PE investments have seen 30 per cent growth. The rise in volume terms is 50-55 per cent compared to the first half of 2009. Rather, the first half of 2010 saw $5 billion investments (including in real estate and infrastructure sectors). The good thing is that pure-play PE investments are back. Last time, almost 80 per cent PE transactions were from qualified institutional players (QIPs). Out of $5 billion, just about $1.6 billion is from QIPs,” said Srividya C G, partner, specialist advisory services, Grant Thornton.

She added, “The second half of 2010 will see better performance as we think that PE investments have not picked up at the same pace as the growth in the economy. Having said this, I think we are yet to see $500-million deals. The deal size will continue to be $50-100 million.”

Sanjay Bhandarkar, managing director at Rothschild in India, expects PE investments to grow 50 per cent this year. “We are also seeing a pick-up in the PE funding side. One will see a lot more deals. The level of activity is not matched by the level of deal closures that will happen, but that will catch on,” he added.

“The number of investment during the second half will be in line with the story so far. We expect the deal flow to be robust, unless there is a major economic crisis. Growth-stage, BFSI, education, manufacturing and real estate will see the most number of deals. Also, the deal size will go up,” said Niren Shah, managing director, Norwest Venture Partners.