India's buyout market expands, but valuation concerns persist: PE leaders

India’s private equity (PE) market is witnessing increasing buyout activity, driven by consolidation opportunities and global investment shifts. However, high valuations and liquidity constraints remain key concerns, top private equity executives said at the Indian Venture and Alternate Capital Association (IVCA) Conclave here on Tuesday.

 

Mukesh Mehta, senior managing director at Blackstone, highlighted the shift in India's private equity market from minority stake investments to majority buyouts over the past two decades. “In 2006, people used to pay a premium to buy a 5 per cent stake in companies, and if you told anyone that you could buy out a company and sell it in the public market for 100 per cent of your stake, people would think you were joking,” he said.

 

 

India’s market remains distinct from its global counterparts, Mehta added. “In mature markets like the US, UK, and Japan, a lot of deals are secondary, where you are buying from other PE firms. I think that story has just begun here, and many founders have become mature enough to see the value being created by firms like us.”

 

Vivek Pandit, senior partner at McKinsey, pointed out sectoral concentration in buyouts. “There's been increasing concentration from about 50–55 per cent to 75 per cent in three sectors: financial services, IT-BPO, and healthcare. We suspect that will only continue to increase for very important reasons. These are often family-owned and available for sale. You're effectively buying out other people's equity and capital. They often don't require as much cash for growth, other than mergers and acquisitions (M&A) and platform opportunities.”

 

Discussing exits, he emphasised the importance of India’s IPO market. “Sales to sponsors for buyout companies deliver about 2.8 multiple on invested capital (MOIC). Sales to public markets at the time of IPO deliver 5.1, and sales to public markets a year later deliver 4.8. In other words, a huge amount of the outperformance of buyouts has been due to exits, and that is dependent on how buoyant the capital market stays,” he said.

 

Deepak Dara, senior managing director and head of India at Ontario Teachers’ Pension Plan (OTPP), underscored India's long-term consolidation story in healthcare. “Corporate organisations like Sahyadri, which we own, represent only 12 per cent of the overall hospital beds. So, it's a multi-decade consolidation journey.”

 

With rising valuations, some investors are reassessing their strategies. “2024 was a seller's market. We had IPO markets that were crazy. Each one of us had more than four IPOs. We still have another three. It's gotten tighter now. Buying was very difficult last year. We did two or three deals last year; we normally would do five or six. So, the rate of deployment slowed down,” said Manish Kejriwal, managing partner and founder of Kedaara Capital.

 

Kejriwal predicted a shift in 2025, with the second half being more of a buyer's market. “I do think the public markets eventually indicate where the private markets are going. It hasn't been the healthiest start to the year. I think prices will rightly correct, multiples will compress, and the second half of 2025 will be a buyer's market much more than a seller's market.”

 

“I know some of the IPOs have been pulled back due to volatility and the valuation expectations they had in mind, so it will not be as easy to do an IPO as it was earlier,” Mehta said.

 

Sumit Narang, founder and managing director of Samara Capital, pointed to constraints in acquisition financing. “The policy environment around banks lending money for acquisitions was very contextual in the 1960s and 70s when it was formed, and rightly so, focusing on lending against projects and capital. I think, contextually, on the banking side, the ability to lend for acquisitions against a very strong balance sheet and competitive advantages is something that has to be completely re-looked at. It will improve the quality of assets in a bank where they are lending against proven businesses rather than greenfield projects.”

 

Despite concerns, private equity leaders remain bullish on India. “Blackstone India is now the third-largest geography for Blackstone globally after the US and UK, which reflects the importance of India,” said Mehta.