PE investors shift focus from IT, back-office to e-commerce

PE investors shift focus from IT, back-office to e-commerce

Mumbai: Technology companies remain among the destinations of choice for private equity funds, although, within the sector, they have moved away from IT and back-office services companies to e-commerce ventures.

Till 30 September, technology companies in India received $619.4 million (Rs 3,033.1 crore) from PE funds through 70 deals, higher than the $398.1 million (Rs 1,950 crore) they received through 41 deals last year (till 30 September), according to data from Grant Thornton, an audit firm.

Yatra Online,, Flipkart Online Services Pvt. Ltd, Just Dial Pvt. Ltd and SMS GupShup are some of the companies that received PE funding this year. Only a handful of IT services firms received money from PE firms this year.

Srividya C.G., a partner and practice leader, valuation services, Grant Thornton, said the shift has been evident for the past few years. After the dot-com bust in the early 2000s, PE funds invested in non-Internet companies in the technology sector, she explained. But these companies have “reached a stage where they are stable and probably past the high-growth phase," she said, and that “explains why PE investors have moved away."

Several back-office and IT services firms, including WNS Holding Ltd, Genpact Ltd, EXlService Holdings, along with IT companies such as Patni Computer Systems, recieved PE funding in the early 2000s.

Srividya said e-commerce companies are on a sounder footing.

“Even though the valuation may be a little unrealistic right now, the fundamentals of these companies are much more strong than they were during the dot-com bubble," Srividya said. “The strength is showing not just on paper, but also in the fact that people are actually using these platforms for commerce."

The low requirement for fresh capital in IT and back-office services companies is another reason for PE funds looking at newer pastures, said an executive at a PE fund.

“You will see some action on the secondary sale side where the existing PE investors will make way for newer (ones)," said Amit Chander, head of healthcare, pharmaceutical and IT at Baring Private Equity Partners (India) Pvt. Ltd. With time, PE funds will look at other emerging areas in technology, said an expert.

New areas such as cloud computing, mobility, analytics and next generation IT solutions and models are attracting a lot of interest and investments, said Vikash Jain, partner at consultancy firm Everest Group.

The segments are not strictly comparable, according to Aashish Bhinde, executive director and head, digital media and technology at Avendus Capital Pvt. Ltd.

“The maturity levels of companies in both the sectors are different," he said. “Digital media companies are where IT companies were at the start of 1999-2000." Digital media and internet companies continue to grow at a higher pace than IT companies because of the smaller base.