Mumbai: Private equity (PE) and venture capital (VC)-backed exits have surged in the past two years, doubling to $31.8 billion in 2018, driven by large strategic sales and secondary exits, according to consultancy firm Bain and Co.
While Walmart-Flipkart deal contributed to a large part of exits, healthy public markets, continued strong interest and the willingness of PE firms to make bigger bets in the Indian market comprised other large exits, said Lalit Reddy, a partner at Bain and Co.
The year 2018 saw 259 exits, or 23% more than the 211 in 2017, on the back of deals in consumer technology, IT and IT-enabled services, such as Blackstone’s $1 billion sale of Intelenet to French outsourcing firm Teleperformance.
According to the report, public markets were the most preferred mode of exit, over strategic sales, secondary sales and buybacks. However, public markets’ share in the overall exit pie has fallen. Less exits via public exits will continue because of elections coming up, but markets may become preferable after the elections, said Reddy.
Going forward, exits will also see momentum in sectors which were ripe for investments three-seven years ago. “As an example, you will see exits happening in IT services, financial services and healthcare," he added.
Last year also saw the number of deals increasing to 793 from 700 in 2017. The deal value, at $26 billion, however, remained largely flat compared with the previous year.
Consumer tech saw the largest deal values and volumes, owing to a few large firms, such as payment and retail platform Paytm and cab-hailing app Ola, scaling up. This was followed by financial services, with non-banking financial companies and banks comprising more than 60% of the deals. Housing Development Finance Corp. Ltd (HDFC) led the pack with a $1.7 billion fundraise from GIC and PE firm KKR India Advisors, among others.
“It is easy to see the massive potential (of consumer tech) looking at the current levels of penetration of e-commerce, online delivery and social networking. So, it is only natural that the space is attracting a lot of interest and will continue to do so," said Reddy.
Last year also saw a large chunk of deals concentrated among a few well-funded firms, with the top 15 transactions making up 40% of the total PE deal value. This was seen across listed and/or established companies such as HDFC and Star Health and Allied Insurance, as well as startups, including hotel chain Oyo Rooms and food-delivery startup Swiggy, which raised $1 billion each.
According to the report, there was a marked increase in late-stage deals last year and a higher proportion of majority investments and buyouts, with more than half of the deals being for a stake exceeding 25%. Blackstone’s sale of Intelenet and Australia-based infrastructure fund Macquarie’s $1.5 billion acquisition of Indian road assets from the National Highways Authority of India were some of the biggest buyouts. This was followed by retailer Vishal Mega Mart’s acquisition by Kedaara Capital and Partners Group for $734 million, Greenko Energy Holdings that was acquired for $450 million by GIC and Abu Dhabi Investment Council. Out of 23 buyout deals in the first six months of 2018, seven worth $2.3 billion were in the infrastructure and real estate.
Mint had reported on 31 December that buyouts were a dominant theme last year, totalling more than $5.5 billion, or double the amount compared with the previous year. The trend underlines the growing appetite among PEs to seek deals for control of companies in India and to ensure better control of their portfolio companies, drive decision making, strategy and corporate governance.
The share of buyouts in the PE/VC investment pie in India is projected to grow progressively, driven by increase in funds available with PE investors and as more and more enabling conditions emerge, according to experts. The trend is also indicative of increasing willingness among Indian promoters to cede control to a financial partner to push business growth.