MUMBAI, May 14, 2019 /PRNewswire/ --
- PRIVATE EQUITY FUNDS RECORDED INVESTMENTS WORTH $ 26.3 BILLION IN 2018, SECOND HIGHEST IN THE LAST DECADE
- Bain & Company's latest India Private Equity Report finds 2018 was an excellent year with 265 exits valued at nearly $33 billion and fund raising worth $714 billion, the third-largest amount on record
The private equity market in India remained a hotbed for deal-making in 2018 with a total of $26.3 billion in investments across 793 deals, which was the second highest in the last decade in total investment value, according to Bain & Company's '2019 India Private Equity Report', released today in partnership with Indian Private Equity & Venture Capital Association (IVCA).
Private equity funds are also increasingly prioritizing deal quality over quantity, with the top 15 deals comprising about 40 percent of total deal value and the number of deals greater than $50 million, increasing from the previous year. The market for exits remained strong as well, with 265 exits valued at nearly $33 billion in 2018, signalling investor confidence in the Indian market. Nearly half of last year's exit value resulted from the $16 billion sale of Flipkart to Walmart. However, even excluding that, 2018 was one of the best years for exits in the last decade.
In addition, the industry had an excellent run at raising funds to the tune of $714 billion from investors during the year, the third-largest amount on record, bringing the total capital raised since 2014 to $3.7 trillion.
The Bain & Company report noted that diversified fund raising across Asia-Pacific had slowed down, as a result of the Chinese government's decision to tighten rules on PE investment. However, India-focused dry powder remained healthy at $11.1 billion, again an indication that high-quality deals do not lack capital.
With a growing number of funds, increasing from 474 active participating funds in 2014-16 to 491 during 2015-17, competitive pressures in the market intensified. Investors, both local and global PE firms, viewed this as the biggest competitive threat.
Arpan Sheth, Partner, Bain & Company and one of the lead authors of the report said: "The Indian market signalled investor confidence with the year 2018 proving to be one of the best years for exits in the last decade. Considering how India's economy is poised for growth in the coming year, many more exits are expected during the next few months. Also, with 265 exits valued at nearly $33 billion in 2018, the public market remained the most preferred mode, with strategic exits."
Consumer tech and banking, financial services and insurance (BFSI) remained the largest industry sectors for investment by value. While consumer tech investment was still large at $7 billion, it actually shrank from more than $9 billion in 2017. BFSI also remained dominant with almost $5 billion of investments in 2018, driven by a rising class of non-banking financial companies (NBFCs) that continue to flourish in the ecosystem. The notable large investments in 2018 across the two sectors included investments in HDFC Bank, Star Health and Allied Insurance, Swiggy, OYO Rooms, Paytm and Byju's. The market also witnessed increased investment activity in consumer/retail, with multiple deals in food (Ching's Secret, Gemini Edibles) and apparel (V-Bazaar Retail).
The average deal size in 2018 remained somewhat flat. Small-ticket deals of less than $25 million decreased, as did those for transactions greater than $100 million. Further, the average deal size in consumer tech declined approximately 30 percent, due primarily to the absence of large 'Flipkart-esque' deals (such as SoftBank's investments of $2.5 billion in Flipkart and $1.4 billion in Paytm) which had pushed up average deal size in 2017.
There was also an increase in majority deals and late-stage investments and buyouts. These featured a few large individual buyouts like Star Health and Allied Insurance ($930 million) and Prayagraj Power Generation Company ($830 million). In the coming months, funds expect further investment activity in BFSI and consumer/retail, even though the valuations are still perceived to be high. Healthcare is another sector of rising interest, with funds eyeing players across the spectrum-pharmaceuticals, equipment, single-specialty hospitals and clinics, diagnostics and others. Interest in technology and IT will be largely driven by rapidly growing enterprise tech (SaaS) companies that operate out of India and sell globally.
In terms of fund-raising, buyout funds continued to draw the biggest share of capital, but investor interest during this record stretch was broad and deep, benefiting a variety of funds. Investors looking for diversification flocked to Asia-Pacific's relatively healthy long-term growth profile. However, after a few strong years, fund-raising has slowed across the region. Only 14 percent of funds raised globally were focused on the Asia-Pacific in 2018, compared with 23 percent in 2017.
New asset classes like Alternate Investment Funds (AIFs) and distressed-asset management have increasingly gained traction in the Indian market, aided by government regulations and tax breaks. Funds raised by AIFs more than doubled from approximately $2.4 billion in 2016 to approximately $5.5 billion in 2017, and are estimated to have exceeded $7 billion in 2018. The number of AIFs registered in India almost doubled from 268 in 2016 to 518 as of February 2019. Fund-raising will continue being a key priority for many investors in India, although most expect it to become more challenging in the next 12 months.
"It was an excellent year for PE in India. While investment value reached the second highest level of the last decade, exit values were the highest in the last decade, which points to investor confidence and maturity of the Indian PE landscape. Going ahead, we believe there is sufficient India-focused dry powder to ensure high quality deals don't lack capital," said Sriwatsan Krishnan, Partner, Bain & Company and a co-author of the report.
As for exits, they increased across sectors, with the primary contributors to exit values being consumer tech, IT, ITES, and BFSI. A few large exits dominated in 2018, with the top 10 exits accounting for 70 percent of total exit value. Apart from Flipkart, these included Intelenet Global Services Pvt. (Blackstone), GlobalLogic (Apax), Star Health and Allied Insurance (multiple funds) and Vishal Retail (TPG). The public market remained the most preferred mode for exits-though there was a spike in strategic exits, primarily driven by consumer tech. Over the last five years, funds have made reasonable returns across most sectors, with consumer tech, IT/enterprise tech and BFSI having the highest multiples on invested capital.
According to Bain & Company's survey of investors, top-line growth, cost and capital efficiency are expected to be the biggest creators of future value. Further, keen buyers and strong management teams played a major role in successful exits. Those that did not meet expectations were often the result of management issues and macroeconomic headwinds. A majority of survey respondents felt that net returns in the next three to five years would stay in the same ballpark as today.
Given how India's economy is poised for growth in the coming year, and with capital markets on an upswing, many more exits are expected during the next few months. However, rising valuations and interest rates continue to pose concern for most investors.
About Bain & Company's Private Equity Business
Bain & Company is the leading consulting partner to the Private Equity (PE) industry and its stakeholders. PE consulting at Bain has grown eightfold over the past 15 years and now represents about one quarter of the firm's global business. We maintain a global network of more than 1,000 experienced professionals serving PE clients. Our practice is more than triple the size of the next largest consulting company serving PE firms.
Bain's work with PE firms spans fund types, including buyout, infrastructure, real estate and debt. We also work with hedge funds, as well as many of the most prominent institutional investors, including sovereign wealth funds, pension funds, endowments and family investment offices. Bain & Company supports its clients across a broad range of objectives that include deal generation, due diligence, immediate post-acquisition and ongoing value addition, exit planning, firm strategy and operations, and institutional investor strategy.
About Bain & Company
Bain & Company is the management consulting firm that the world's business leaders come to when they want results. Bain advises clients on private equity, mergers and acquisitions, operations excellence, consumer products and retail, marketing, digital transformation and strategy, technology, and advanced analytics, developing practical insights that clients act on and transferring skills that make change stick. The firm aligns its incentives with clients by linking its fees to their results. Bain clients have outperformed the stock market 4 to 1. Founded in 1973, Bain has 58 offices in 37 countries, and its deep expertise and client roster cross every industry and economic sector. For more information visit: http://www.bain.com. Follow us on Twitter @BainAlerts and @BainIndia .
About Indian Private Equity & Venture Capital Association (IVCA)
IVCA is the oldest and most influential PE/VC Industry body in India, with the sole focus to promote the AIF asset class within India and overseas. IVCA's mission is to promote a healthy environment for the growth of private equity and venture capital, which is needed to support economic growth, good governance, entrepreneurship, innovation and job creation in India. IVCA stands for the values of good governance, environment protection and poverty reduction through growth of the private sector. It helps establish high standards of governance, ethics, business conduct and professional competence. We reach out to the far flung areas of India and also stand ready to assist on a global scale to contribute significantly. IVCA is a non-profit organization powered by its members. The members are influential firms from around the world, including private equity and venture capital funds, corporate advisors, lawyers and institutional advisors.
To receive a copy of the report or arrange an interview with its authors, contact:
Indian media contact:
International media contact: