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2018 shows a record year for PE/VC investments, exits and fund raise: EY

Capital Market 

Investments grew 35% and exits grew two times in 2018

According to EY's Private Equity Monthly Deal Tracker, PE/VC investments in 2018 aggregate to US$ 35.1 billion, surpassing the previous high of US$ 26.1 billion recorded in 2017 by 35% on the back of significant growth in large deals. 2018 recorded eight billion dollar plus deals compared to 11 such deals in previous 12 years combined. PE/VC exits recorded US$ 26 billion in value, almost equal to the value of exits in the previous three years combined.

Talking about the PE landscape, Vivek Soni, Partner and - Private Equity Services, EY said, "2018 has been the best year for PE/VC investments and exits. As forecasted by us in the beginning of the year, both PE/VC investments as well as exits have touched a new record high in 2018. Though volatility in broader markets dampened PIPE investments in the second half of 2018, this was more than adequately compensated by an uptick in buyout and start-up activity. At US$ 9.8 billion, value of buyouts in 2018 is almost equal to the value recorded in 2017, 2016 and 2015 combined. We believe this indicates growing maturity of the Indian PE/VC ecosystem where buyouts and large deals account for a major share of Start-up investments also recorded a sharp rebound in 2018 and with the Walmart-deal concluding successfully, there is renewed interest in the Indian start-up ecosystem and investors are more than keen to fund differentiated start-up business models driven by

In the long term, we see the Indian PE/VC market expanding significantly, given that we are currently at a very nascent stage when compared to global markets. We expect 2019 to also be a good year for PE/VC in and potentially, even surpass the levels achieved in 2018 on the back of huge sums of dry powder of close to US$ 40 billion (as per EY estimates) waiting to be deployed in Downside risks include disruption to the global capital flows in wake of rising trade tensions between US and China, the Brexit situation, and concerns around slowing global growth which could dampen sentiment and slowdown investments in the short term. On the domestic front, the upcoming in 2019 will be keenly watched, especially after the ruling establishment suffered losses in the recently concluded state elections. Any political uncertainty stemming from a fractured mandate could make investors cautious in the short term."

Investments

PE/VC investments in in 2018 witnessed a sharp increase in the value on account of some very large deals (12 deals of value US$ 500 million or greater, including eight US$ 1 billion plus deals).

In 2018, investments increased by 35% in value terms compared to 2017 (US$ 35.1 billion vs US$ 26.1 billion in 2017) and deal volume increased by 28% (761 deals compared to 594 deals in 2017). The growth was led by strong pickup in buyouts and start-up investments.

(The data includes deals that are announced but are awaiting closure on account of regulatory approvals etc. like the PE funded UPL-Arysta deal, Retail deal etc.)

Notwithstanding the minor decline in 2017 buyouts are expected to be one of the major trends of the Indian PE/VC sector in the years to come. We had highlighted this in our report titled "PE/VC Agenda India Trend Book - 2018" released in early 2018. In 2018, there were 48 buyouts aggregating to US$ 9.8 billion, surpassing all the previous year highs and almost equal to the value of buyouts in the previous three years combined.

After a record start-up investments in 2015 and subdued investments in 2016 and 2017, 2018 recorded a strong uptick in start-up investments on the back of some mega deals that saw like Softbank, and deploy significant amounts of capital. On a Y-o-Y basis, investment in start-ups increased 83% to US$ 6.4 billion compared to US$ 3.5 billion in 2017. 2018 was also the best year for start-up investments, surpassing the previous high recorded in 2015.

Growth investments, at US$ 12.7 billion, recorded a decline of 5% and saw its share in the total investment pie decline to 36% compared to over 50% in prior years. At US$ 3.9 billion, private investment in public equity (PIPE) deals recorded a modest increase of 3% in terms of value, impacted by volatility in the stock markets.

As the Indian market matures, PE/VC deals are becoming larger and more complex. There were 76 deals of value greater than US$ 100 million in 2018, aggregating to US$ 25.9 billion and accounting for 74% of total PE/VC investments made in 2018 compared to 54 deals, aggregating US$ 18.7 billion, of value greater than 100 million in 2017. The value and volume of large deals has been progressively increasing over the past 4-5 years.

The largest deal during the year saw GIC, KKR, PremjiInvest and OMERS invest US$ 1.7 billion in for a 3% stake. This was followed by a consortium of investors including Warburg Pincus, Softbank, and others investing US$ 1.3 billion to acquire 28% stake in Bharti Airtel's Africa business. The largest deal in the Infrastructure and Real Estate asset class saw acquire tolling rights to select NHAI road assets for US$ 1.4 billion.

From a sector point of view, most of the sectors recoded significant increase in value invested. In 2018 11 sectors recorded over US$ 1 billion in investments compared to seven in 2017. Notwithstanding the decline in deal activity in the second half of 2018 following the liquidity issues faced by the NBFC sector, Financial Services continued to be the top sector receiving US$ 7.5 billion in investments across 141 deals, a 6% increase over 2017. This was followed by Real Estate (US$ 4.5 billion across 49 deals), 10% decline compared to 2017 and E-commerce (US$ 4.3 billion across 83 deals), 9% decline compared to 2017.

Other sectors that recorded significant improvement in investments include Industrial Products (US$ 1.6 billion across 21 deals in 2018 vs US$ 62 million across 6 deals in 2017), Food and Agriculture (US$ 1.8 billion across 45 deals in 2018 vs US$ 364 million across 47 deals in 2017), Retail and Consumer Products (US$ 1.9 billion across 41 deals in 2018 vs US$ 678 million across 36 deals in 2017) and Education (US$ 843 million across 38 deals in 2018 vs US$ 253 million across 20 deals in 2017).

Exits

2018 was the best year ever for exits. In 2018, PE/VC exits, at US$ 26 billion, increased by almost 100% compared to 2017 and are almost equal to the value of exits in the previous three years combined. The sharp rise was mainly on account of a single large deal that saw acquire controlling stake in for US$ 16 billion from a clutch of investors including Softbank, and others. This is the largest deal in the Indian PE/VC market ever.

As a result of volatility in stock markets, both open market exits and PE-backed IPOs recorded significant declines. 2018 recorded US$ 1.7 billion in open market exits across 56 deals compared to open market exits worth US$ 6.2 billion across 128 deals in 2017, more than 70% drop in terms of value and over 56% drop in terms of volume. Likewise, 2018 recorded 11 PE-backed IPOs worth US$ 760 million compared to 21 PE-backed IPOs worth US$ 1.8 billion in 2018, more than 50% drop, both in terms of value and volume.

This decline, was however, more than compensated by increase in strategic and secondary deals. Strategic exits (US$ 18.4 billion across 50 deals in 2018) were the highest in terms of value, more than 20x the value recorded in 2017, mainly on account of the US$ 16 billion Walmart-deal. Even after adjusting for the Walmart-Flipkart deal, at US$ 2.4 billion, strategic exits in 2018 are almost 3x that of 2017 (US$ 881 million across 42 deals in 2017). Similarly, secondary exits (US$ 4 billion across 41 deals in 2018) recorded a growth of 21% in 2018 compared to 2017.

From a sector perspective, E-commerce (US$ 16.4 billion across 10 exits), Technology (US$ 1.8 billion across 24 exits), Financial Services (US$ 1.5 billion across 34 exits) were the top sectors for PE/VC exits in 2018.

Fund-raise

2018 saw US$ 8.1 billion being raised across 51 fund raises by PE/VC funds, a 40% increase over 2017 and the highest ever. Similarly, the fund-raise plans announced stood at US$ 22.3 billion, which again is the highest ever. This further reiterates the underlying trend, reflected in both investments and exits, of India's improving attractiveness for global PE/VC funds as the domestic PE/VC ecosystem flourishes.

The largest fund-raise during the year saw Indospace (Everstone managed for building logistic parks) close its third fund at US$ 1.2 billion, followed by Sequoia and raising US$ 695 million and US$ 600 million respectively.

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(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Mon, January 14 2019. 15:00 IST
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