PE investments in India double in Q2’13 as against Q1’13

• Exits will continue to be the primary focus for private equity funds.

After a dismal first quarter, the PE investments in the second quarter of 2013 (Apr-June’13) have bounced back with more than double the value of investments. PE firms have invested 2330 million USD across 82 deals in this quarter despite a 3.5% drop in the volume of deals.  In comparison with the same quarter last year, i.e., Q2 ’12, there has been an increase of 18% in value despite a 29% drop in the number of deals. The Jan-Mar ’13 period (Q1’13) had seen an investment of just 929 million USD through 66 deals. The findings are part of the PwC MoneyTree™ India report, a quarterly study of private equity investment activity based on data provided by Venture Intelligence.

With 31 deals worth 453 million USD in Q2 ’13, the information technology (IT) and IT-enabled services (ITeS) sector is the leader in terms of volume and ranks second in terms of value. This is a three-fold growth in value despite a 16% drop in volume, as compared to the previous quarter. Within the IT and ITeS sector, the IT services sub-segment recorded the highest investment with a total of 284 million USD invested in four deals. The online services segment received the second highest level of investment worth 115 million USD from 19 deals, the highest in terms of volume.

Sandeep Ladda, Leader, Technology, PwC said, “Traditionally, the IT and ITeS sectors have been extremely lucrative for private equity investments. The sector has remained fragmented over the last few years, and so has the inflow of investments. Hence, consolidation may be in the offing in the near future.  New destinations such as Chennai and the NCR region are becoming attractive propositions for private equity investors. While the Indian rupee depreciation is likely to have a favourable impact on the IT and the ITeS segment, the sudden and large spurt in deals will only add a fillip to the otherwise gloomy global market.”

In terms of value, the manufacturing sector leads this quarter with investments worth 796 million USD from six deals. This is a significant leap from the 65 million USD invested in Q1 ’13 and the 47 million USD in Q2 ’12. The increase is primarily driven by a couple of large deals, each worth over 250 million USD.

According to Sanjeev Krishan, Chairperson, PwC in India, “During this quarter, the falling rupee was the biggest concern for private equity funds, particularly as a couple of investors tried to exit from some of their investments. Even for those trying to raise funds, it has been an exigent quarter. Along with the challenges caused by the limited partners’ activism over the recent times, the seemingly poor macro-economic environment within the country has also added to their worries.”

The banking, financial services and insurance (BFSI) sector had the highest value of investments in the previous quarter. However, in this quarter, there has been a considerable drop in investments—from 264 million USD across 10 deals in the preceding quarter to 138 million USD from five deals in this quarter. It declined 47% in value and 50% in volume. Even when compared to the same quarter last year, i.e., Q2 ’12, there has been a drop of 60% in the value of investments and 60% in the number of deals.

The energy sector witnessed the third highest investment in terms of value with investments worth 235 million USD from four deals as compared to 159 million USD from two deals in the previous quarter and 299 million USD from six deals in Q2 ’12.

The healthcare and life sciences sector has shown a 66% growth in value quarter over quarter. It rose from 130 million USD across 12 deals to 215 million USD across 11 deals. However, when compared to Q2 ’12, the value and volume of deals have fallen by 12 and 15%, respectively.

A few sectors like education, shipping and logistics sectors have reported a significant decline in the values and volumes of deals in this quarter as compared to Q1 ’13 and Q2 ’12.

In Q2 ’13, private equity investments in the buyout stage recorded the highest value, seeing 740 million USD from three deals, a significant rise compared with the previous quarter, which saw 64 million USD across three deals. Compared to the same period last year, there was an increase of 9% in investments despite a 57% drop in the number of deals.

The late stage deals ranked second both in terms of value and volume of deals with an investment of 666 million USD from 20 deals, a two-fold growth in value and an 11% increase in the number of deals in Q1’13. The early stage category has the highest number of deals in this quarter (30 deals worth 102 million USD). The volume of deals in the early stage is over 36% of the total deal volume.

By region, Mumbai is back at the top this quarter, recording the highest level of funding at 1193 million USD, more than 50% of the total PE investments. Even in terms of volume, Mumbai, with 20 deals, has the majority share at 24%. Even though the National Capital Region (NCR) has retained its place in the top three regions on the basis of the number of deals (16 deals), the volume has fallen by 6% and 24% as compared to Q1 ’13 and Q2 ’12 respectively. However, the value of investments has shown a 95% growth this quarter as compared to the preceding one.  

Private equity investments in Bangalore and Chennai, too, have shown an increase in the value of investments this quarter, as against the previous quarter.

Private equity exits

The exit activity in this quarter has doubled when compared to the previous one. In Q2 ’13, PE exits were worth 1782 million USD from 30 deals as compared to 884 million USD from 29 deals in Q1 ’13. Compared to the same period last year, the exits have shown a more than five-fold growth in value and an increase of 15% in volume. In Q2 ’12, there were 26 exits worth 321 million USD.

The majority of the exits in this quarter came from the IT and ITeS and manufacturing sectors which together contributed around 57% of the total exit value and 53% of the total volume.

The IT and ITeS sector tops the list of PE exits, in terms of both value and volume, with ten deals worth 539 million USD. This constitutes 30% of the total deal exit value. The manufacturing sector, in terms of value, ranks second with an exit of 472 million USD from six deals.

The energy, education, engineering and construction sectors also have witnessed a spurt in the exit value in the present quarter. The BFSI sector witnessed an 18% drop in the exit value along with a 50% drop in the volume, from 391 million USD (six deals) in Q1 ’13 to 322 million USD (three deals) in this quarter.

The preferred modes of exits in this quarter have been through public market sale (nine exits) and strategic sale (seven exits), constituting 53% of the total exit volume. The other modes were secondary sale (six exits), buyback (six exits) and two exits through IPO. In Q2 ’13, secondary sale fetched the highest exit value, worth 798 million USD (about 45% of the total exit value).

Note to editors

• Information included in this release or related venture capital investment data should be cited in the following way:  "PwC's MoneyTree™ India Report with data provided by Venture Intelligence." After the first reference, subsequent references may refer to PwC's MoneyTree India Report. Charts and tables displaying the data are sourced to "PricewaterhouseCoopers India Pvt. Ltd/Venture Intelligence data." After the first reference, subsequent references may refer to PwC MoneyTree India Report.
• The top 20 deals comprised 84% of the total deal value in Q2 ’13. The top three deals constituted over 50% of the total top 20 deal value. About 87% of the deals in this quarter are below the value of 50 million USD.
• The top two exits comprised 32% and the top five constituted close to 51% of the total exit value in Q2 ’13.

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