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As the Indian private equity industry continues to mature, the country will see more and bigger buyout transactions, a trend that has steadily gathered pace over the last few years.

“When we opened our office in India, the market was not mature. Only 5-6% of the deals were buyouts and today, almost 50% is late-stage control deals. This will only increase over time. It is a natural progression of the market. And PE firms have become much more confident about India," said Utsav Baijal, senior partner and head of India private equity at Apollo Global, an American alternative asset investment giant.

There are many factors that have acted as catalysts for the growth of buyouts in India, Baijal said at Mint’s India Investment Summit. “The insolvency and bankruptcy code has made promoters take debt more seriously. Covid is also going to be a major catalyst for buyouts. It has made companies and promoters re-evaluate where they want to go," said Baijal.

While buyouts continue to grow and become more dominant in the Indian dealmaking landscape, another major trend that will shape PE dealmaking is technology-led disruption. Even as covid has caused major dislocation in the Indian economy, it has also acted as a tailwind for digital and technology-enabled businesses, thus making it a big criterion for private equity firms that are looking to bet on the next set of high growth companies in India.

“If you look at the digital economy, consumer tech and SaaS (software-as-a-service) kind of companies, there is a lot of risk capital going into that. And that will change the landscape of what the economy will look like," said Shashank Singh, partner and head of the India office at global private equity firm Apax Partners. “As a proportion of PE deals globally, technology investments have been an increasing trend over the last 20 years and our prediction is that it will continue to grow significantly," Singh added.

Going ahead, PE investors will increasingly look to invest in businesses that are adopting technology to not just stay relevant, but also gain market share. “We are witnessing fundamental shifts in consumption patterns, which have been accelerated by covid and disruptive innovation is likely to displace incumbents, increase efficiency and gain market share. Companies need to pursue digital transformation not just to capture benefits of these trends but to also keep pace with competitors," said Nikhil Srivastava, partner and MD, head of India private equity at Asia focused investment firm PAG.

“As new technologies emerge and transform industries, investing in traditional players is actually more risky than we appreciate," he added.

Regulatory changes too will create new opportunities for investors in the technology sector.

“There are a set of opportunities that have been created as a result of regulatory changes. The IBC regime is evolving. There is a greater push towards localization. Payment systems are evolving and then there is the data privacy law that will come in," said Harsh Pais, partner at law firm Trilegal.

According to Renuka Ramnath, founder of homegrown PE firm Multiples Alternate Asset Management, while the pandemic is a cause of grave concern, investors are unlikely to shy away from investing in India due to it. “There is no case for slowing down the pace of investments. In the next five years, I expect that we will get anywhere between $25-30 billion of private equity into the country and then from there onwards, it will grow," she said.

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