PE investments decline 87% to $526 million

Private equity (PE) investments into India for the quarter ended March 2009 has dropped by a whopping 87 per cent to $526 million as against $3.9 billion a year ago, according to a Venture Intelligence report.

The Chennai-based firm, which is a leading provider of information and networking services on private equity, mergers & acquisitions and venture capital in the country, said the number of deals has also declined to 36 compared to 133 a year ago. Only two large investments were recorded during the quarter: About $50 million was raised by media and entertainment company Nimbus Communications from its existing investors and the $47.5 million raised by start-up broadband ISP services provider Tikona Digital Networks.

 

The information technology and IT-enabled services (IT & ITeS) industry has recorded only 13 deals worth $95 million during the quarter compared to 35 deals worth $687 million.

Manufacturing was a distant second with four deals clocking $36 million in investments, compared to 19 deals $589 million in the corresponding quarter a year ago. The banking, financial services and insurance (BFSI) industry had only three deals to its name worth $53 million compared to 10 deals worth $229 million.

“While investment activity is down across the board, there seems to be an interesting short-term trend — on a relative basis — in terms of stage of investments.

“There are more deal closures at the two ends of the spectrum – late stage and early stage. In the current environment, growth stage companies seem to be postponing their fund-raising plans due to both business uncertainty and valuation concerns,” said Arun Natarajan, CEO of Venture Intelligence.

The data also indicates that the venture capital segment also witnessed a sharp deceleration in activity during the period, with companies investing only $44 million in over just nine deals compared to investments of $226 million across 33 deals in the quarter ended March 2008. Interestingly, in the comparable previous quarter, 18 deals fructified registering investments of $91 million.

IT & ITeS companies accounted for five out of the nine investments. Interestingly, two-thirds of the VC investments during the quarter were in the early stage segment. “The only silver lining is that regardless of the environment, private equity and venture capital investors will manage to find the money to invest in companies that are founded by executives with deep domain expertise — exemplified by companies such as broadband ISP firm Tikona Digital Networks and vocational education firm Global Talent Track,” Natarajan added.