Mumbai: Private equity (PE) deals in the country fell to a three-year low in 2012 as the lack of exit options, subdued investment sentiment, slowing growth and challenges in fresh fund raising coupled with prolonged due diligence kept investors away from infusing fresh capital into Indian companies.
Both deal volume and value have fallen steeply this year, with PE firms making 268 transactions worth $7,595 million, compared with 352 deals in 2011 worth $11,451 million and 303 deals worth $9,196 million in 2010, according to VCCEdge, an investment tracker.
“2012 was a damper for PE investors in terms of fund raising and exits and we saw the lowest growth in a decade,” said Rajesh Srivastava, chairman and managing director, Rabo Equity Advisors Pvt. Ltd, India’s first and only food- and farm-focused PE fund.
“The outlook on India was negative due to slowing growth, lack of exits and returns and a non-active government,” Srivastava said, adding there was an improvement in the second half of the year with the easing of foreign direct investment (FDI) norms in some sectors.
Bain Capital agreed to buy a 30% stake in Genpact Ltd for $1 billion (around Rs.5,500 crore), valuing the business process outsourcing and technology company at $3.29 billion.
The biggest PE deal in the consumer space this year was Singapore’s sovereign wealth fund Temasek’s investment of $135 million for a 4.9% stake in Godrej Consumer Products Ltd (GCPL).
Investors’ interest in food firms was also evident with capital going into dairy firms and restaurant chains. New Silk Route invested $38 million in Bangalore-based Vasudev Adiga’s Fast Food, while Rabo Equity Advisors invested an undisclosed amount for a significant minority stake in Ahmednagar-based Prabhat Dairy Pvt. Ltd.
Aditya Birla Private Equity invested an undisclosed sum for a significant minority stake in fine dining restaurant operator Olive Bar and Kitchen Pvt. Ltd, which owns the Olive, Monkey Bar, LAP, Ai and Soul Fry brands.
Investors are hopeful of the consumer sector seeing more deals in 2013 following the easing of FDI norms.
“Sectorally, the broader consumer space in India continues to gain traction. A play on the young, upwardly mobile, middle class Indian consumer has immense potential,” said Darius Pandole, partner, New Silk Route Advisors Pvt. Ltd.
While the lack of exits has been the biggest hurdle for PE firms in India, with nearly 80% of investments in India yet to give returns, financial services led in offering exits to investors—$2.44 billion, the highest since 2007.
In the largest exit this year, PE firm Carlyle Group sold its remaining 3.7% stake in mortgage lender Housing Development Finance Corp. Ltd (HDFC) for nearly $841 million. Carlyle had raised about $270 million in February by selling a quarter of its stake in HDFC. The stake sales marked the PE firm’s exit from HDFC after nearly doubling its original 2007 investment of $650 million.
The top PE investor, in terms of volume, was International Finance Corp. (IFC) with 11 deals, followed by Brand Capital with nine transactions.
Meanwhile, the year also saw the regulator categorizing hedge funds as a class of alternative investment funds. Hedge funds have until now been nearly absent from India, mostly because of the focus on investments through mutual funds, direct equity and portfolio management services. A few such funds in the pipeline include Bangalore-based boutique investment bank AGacquisitions India’s new hedge fund, Forefront Alternative Investment Trust and Quant First Alternate Investment Trust.
Experts say investments and the sources that companies tap for funding will be a function of their confidence in long-term growth and sustainability. “The economy has to grow and promoters have to feel confident about investing capital in their companies. We will see a lot of structured deals in future, along with debt funding,” said Avinash Gupta, senior director and leader, financial advisory, Deloitte, in India.