Home / Companies / People /  Tech disruption to influence PE deals

The covid-19 pandemic, which has caused major dislocation in the Indian economy, has also acted as a tailwind for digital and technology enabled businesses, thus making it a big criteria for private equity (PE) firms looking to bet on the next set of high-growth companies in India, said private equity industry leaders at the Mint India Investment Summit on Thursday.

“If you look at the digital economy, consumer tech, software-as-a-service kind of companies, there is a lot of risk capital going into that. That will fundamentally change the landscape of what the economy will look like," said Shashank Singh, partner and head of the India office at global PE firm Apax Partners.

“As a proportion of PE globally, technology investments have been an increasing trend over the last 20 years and our prediction is that it will continue to increase significantly and it is a trend that we should be prepared for here in India also," he said.

PE investors will increasingly look to put money in businesses that are adopting technology to not just stay relevant in the marketplace but also leveraging technology to reap benefits of the fundamental changes in the economy due to rapid digitization.

“We are witnessing fundamental shifts in consumption patterns across consumers and businesses, 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 the benefits of these trends but to also keep pace with competitors," said Nikhil Srivastava, partner and managing director, head of India private equity at Asia-focused investment firm PAG.

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

The pandemic is a cause of grave concern for the nation, according to Renuka Ramnath, founder of homegrown private equity firm Multiples Alternate Asset Management. However, she does not expect investors to shy away from investing in India because of this.

“There is no case for slowing down the pace of investments. The country will come out of this strongly. In the next five years, I expect that we will get anywhere between $25 billion and $30 billion of private equity into the country and from there onwards it will grow," she said.

“There has also been a lot of facilitation by way of AIF (alternative investment fund) regulation, and more recently the GIFT City, which provides tax clarity for entry and exit of private investments," she said.

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 past few years.

“When we opened our office in India, the market was not mature. Only 5-6% of the deals were buyout and today almost 50% is late-stage control deals. This will only increase over time. It is a natural progression of the market. PE firms have become much more confident about India. So, you will see a lot more of this," said Utsav Baijal, senior partner, 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.

“The insolvency and bankruptcy code has made promoters take debt more seriously now. Covid is also going to be a major catalyst for buyouts. It has made companies and promoters re-evaluate where they want to go," Baijal said.

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