Investments by private equity (PE) and venture capital (VC) firms in Indian companies between January and September 2020 were down 21 per cent in value terms when compared with the same period last year – at $28.9 billion in 2020, against $36.4 billion in 2019. And, the $11.7 billion of PE investments in Jio Platforms and Reliance Retail alone accounted for 40 per cent of all PE-VC investments during this period, show IVCA-EY data.
Had it not been for the one-off PE investments in the Reliance Group entities, PE-VC investments in 2020 would have been just $17.2 billion, 53 per cent lower when compared with the first nine months of last year.
Vivek Soni, partner and national leader for private equity services at EY, said: “Headline numbers for PE-VC investments to date in 2020 have been far better than anticipated, primarily because of the large investments in the Reliance Group entities (Jio Platforms and Reliance Retail) which happened in the second and third quarters. PE-VC investment so far this year (excluding Jio Platforms and Reliance Retail deals) has been $17.2 billion – that is 53 per cent lower than last year, and the lowest in the same period during the past four years. Ex-Reliance Group investments, we expect Indian PE/VC investments to close the year at around $24-28 billion, broadly in line with our earlier estimate of $26 billion.”
In terms of volume, the number of deals in 2020 for the January-September period declined by 10 per cent – 686 deals in 2020, against 764 in 2019.
One of the biggest reasons for the decline in PE-VC investments in 2020 (so far) is the underperformance of the infrastructure and real estate sectors, which had attracted the biggest chunk of PE-VC investment in 2019, at $16.1 billion in the January-September period (and $20 billion for full year). These sectors had accounted for 44% of all PE-VC investments in 2019 (January-September). In 2020 so far, they have received only $2.9 billion in investments, accounting for just 10 per cent of total PE-VC investments. As a result, there has been a sharp decline in buyout activity as well, which has recorded a decline of 79 per cent in terms of value and 54 per cent in volume terms. Infrastructure and real estate sectors accounted for 73% of all buyouts by value in January-September 2019.
In terms of deal type, all deal types except credit have recorded significant decline in investments. Buyouts were the most affected by the slowdown in PE-VC deal activity. January-September 2020 saw 22 buyouts, worth $2.9 billion, compared with 48 buyouts worth $13.8 billion during the same period last year.
For the period under consideration, the value of buyouts in 2020 is the lowest in three years. Growth deals were the highest, with $17.4 billion invested across 136 deals ($10.2 billion across 171 deals during January-September 2019).
The significant increase in value of growth deals is primarily on account of the $11.7 billion invested in entities of the Reliance Group. Without these, even growth deals would have declined 44 per cent year-on-year. Start-up investments declined, too – by 44 per cent to $3.5 billion across 417 deals ($6.1 billion across 448 deals during January-September 2019).
Private investment in public equity (PIPE) deals declined by 30 per cent to $2.7 billion across 47 deals ($3.8 billion across 41 deals during the same period of 2019). Credit investments were on a par with the $2.4 billion invested across 64 deals ($2.4 billion across 56 deals during January-September 2019).
Despite the mega PE investments in the Reliance Group entities, 2020 has seen a significant decline in both value and number of large deals (those valued more than $100 million). Between January and September, 53 large deals have aggregated to $21.4 billion this year, compared with 84 large deals with a total value of $27 billion during the same period last year.
Moreover, 13 of the 53 large deals in 2020 have been on account of investments in Jio Platforms and Reliance Retail (worth $11.7 billion). Besides the RIL Group PE investments, the other large deals so far in 2020 include Thoma Bravo’s $729-million buyout of Majesco Limited’s US business, Goldman Sachs and Varde Partners’ buyout of Rattan India Power Limited’s debt for $566 million and Baring PE Asia’s buyback of Hexaware shares worth $565 million to delist the company.
From a sectoral point of view, in the first nine months of 2020, almost all sectors have recorded a sharp decline in value invested. Telecom, retail, education and pharma were the only sectors to record an increase in investment in value terms. Moreover, these sectors also recorded their highest ever value of investments in 2020.
Telecom was the top sector, with $10 billion invested across 13 deals (a 10-time increase y-o-y) mainly attributable to investments in Jio Platforms. It was followed by financial services, with $4.1 billion invested across 114 deals (32 per cent decline y-o-y), technology with $2.3 billion invested across 106 deals (30 per cent decline y-o-y), pharmaceuticals with $1.9 billion across 27 deals (five-time increase y-o-y), education with $1.9 billion across 52 deals (2.4-time increase y-o-y) and retail and consumer sector with $1.9 billion across 30 deals (2.8-time increase y-o-y), on the back of large investments in Reliance Retail. The infrastructure sector, which received the highest value of investments in 2019, received $2.2 billion across 22 deals in January-September 2020 (a y-o-y decline of 80 per cent).
Exits declined by 54 per cent in terms of value in 2020 ($3.6 billion, against $7.8 billion in 2019) and were the lowest in terms of value in six years for the period under consideration. In terms of volume, exits declined 13 per cent from last year (100 deals in 2020, against 115 in 2019). The decline was mainly due to fewer large deals.
Exits via open-market sale were the highest in 2020 at $1.9 billion (49 deals), 20 per cent lower when compared with the first nine months of 2019. Exits via initial public offerings (IPOs) were the second-highest, with $1.1 billion recorded across four IPOs (against $247 million across seven IPOs during January-September 2019), including Carlyle’s $1-billion partial exit in the SBI Cards IPO. Exits via strategic sale stood at $425 million (32 deals), 71 per cent lower than the same period of 2019. Exits via secondary sale (sale to other PE funds) stood at $79 million (10 deals), the lowest value in over five years.