Big-ticket PE deals make strong comeback after a slow year

Big-ticket PE deals make strong comeback after a slow year

Mumbai: As private equity (PE) investors look to make fresh investments in India after a slow year, big-ticket deals are making a strong comeback.

In the past six months, 14 deals worth at least $50 million (around Rs232 crore) each were struck, of which seven were of at least $100 million each, according to the latest data from Venture Intelligence, a Chennai-based research service that focuses on private equity (PE) and mergers and acquisitions.

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The average deal size also grew to $14.86 million in January 2010, up from $9.78 million in August 2009, the lowest in the past six months.

Varun Kapur, partner at PE firm TPG Growth, said the increase in deal sizes follows rapid economic growth. “As the scale and the cost of doing business and wages increase, the deal size would increase and this trend will continue in the future," he said, adding that the growth is more pronounced in India than elsewhere.

Indeed, if the amount of funding available is any indication, deal sizes could likely get even bigger.

“We estimate the dry powder (amount of funds waiting to be invested) of the PE firms for India (to be) well enough to support $25-30 billion investment in the coming three years," said Bhavesh Shah, executive director (investment banking), JM Financial Consultants Pvt. Ltd.

“There was a change in the (market) cycle in June-July last year. It takes around six-seven months to close deals, so you will see closures happening in the first quarter and the second quarter this year," said Gaurav Deepak, managing director, Avendus Capital Pvt. Ltd.

Bigger deals are easier to manage than a bouquet of small-sized ones, say industry experts. “For a PE fund, it is more efficient to do a bigger deal even though the amount of time and effort to do a big or small-ticket size deal is the same," said Biswajit Subramanian, managing director,Providence Equity Advisors India Pvt. Ltd.

And as fund sizes increase, so does the incentive to do bigger deals. Baring Private Equity Partners India Ltd, for example, has raised a $550 million Fund III and intends to increase its deal size.

“We are looking to do transactions of over $50 million from our third fund, while from our previous funds we have done sub $50 million deals," Munish Dayal, a partner at the firm, told Mint.

Deal size also grows with the ability to strike deals as part of a consortium. This behaviour, said Kapur of TPG, is a function of the times, the number and kind of PE firms, and risk appetite.

In the past six months, Sequoia Capital India, Fidelity Investments Holdings and Baring Private Equity Partners Asia Ltd together made a $55 million investment in engineering firm Coastal Projects Pvt. Ltd; Citigroup Venture Capital India, Sequoia Capital India and Bessemer Venture Partners together put $100 million into Ind-Barath Power Infra Pvt. Ltd; while Quadrangle and other PE firms made a $300 million investment in Tower Vision India Pvt. Ltd, which manages telecom towers.

“In good times people are ready to take larger slices, but when they are more conservative you will see a greater aggregation of firms," Kapur said.

Graphics by Paras Jain/Mint