Private Equity investments in SMEs down 68% in 2009

Industry experts attribute the drop to the slowdown.

Private Equity (PE) investments in small and medium enterprises (SMEs) in India fell by 68 per cent in 2009 to $580 million (around Rs 2,670 crore) from $1,824 million (around Rs 8,390 crore) in 2008.

According to data compiled by Venture Intelligence, a Chennai-based research firm which tracks PE investments, SMEs had attracted PE investments worth $1,454 million (around Rs 6,670 crore) in 2007.

The drop in 2009 has been attributed to the slowdown in the global economy, which prompted PE investors to decide not to access capital.

While describing this as a “temporary phenomena”, industry experts said that PE funds were poised to invest an estimated $5 billion (around Rs 23,000 crore) in India. Some sectors that are fast picking up are infrastructure, education, health care and food and beverages, among others.

According to a World Bank report, India has 13 million SMEs in the manufacturing and services sector. One of the greatest challenges for them is the current credit crunch. “Their (SMEs’) access to funding has been constrained, which is affecting their ability to invest in capital goods, environmentally friendly technologies, and job creation,” the report added.

The number of PE investment deals in 2009 was 81, compared to 187 in 2008, a drop of around 56 per cent. In 2007, the number of deals executed by SMEs was 175.

Some of the deals which attracted big ticket investment in 2009 include the investment of $47.5 million (around Rs 218.5 crore) by Goldman Sachs, Indivision and Oak Investment Partners in Tikona Digital Networks in March 2009; followed by the investment of $33 million (around Rs 151.8 crore) by India Equity Partners and Beacon India in A2Z Maintenance & Engg in October 2009; the investment of $30 (around Rs 138 crore) million by Pangea Capital in Coboi Technologies; Banyan FM’s investment of $30 million in Asiana Hotels in May 2009; and another $30 million by BlueRun Ventures, NEA, DFJ and others in Deeya Energy during the same month.