Buyouts are becoming more prominent with the private equity and venture capital investors (PE/VC) looking to invest in Indian companies.
While PE & VC investors started India investments as growth investors, with growing confidence in the Indian markets, funds are now willing to take a controlling stake in quality businesses, said a recent EY report.
Last year saw 49 buyout deals totalling USD 9.9 billion, recording an all-time high. The total deal value was almost equal to the value of buyouts in the previous three years combined. As compared to 2017, buyouts deals doubled in numbers.
“Over the years the Indian entrepreneurial community has grown more amenable to PE/ VC funding and are willing to cede control driven by various factors, including greater understanding of the benefits that a PE/VC partner brings in, succession issues and willingness to take on the role of a mentor to the business while maintaining minority investment in the existing business and moving on to incubate new businesses with the sale proceeds,” the report said.
Infrastructure and Real Estate sectors recorded the maximum number of buyouts with 11 deals in 2018, followed by the Life Sciences sector (Healthcare and Pharma) that recorded seven buyouts.
However, with buyout witnessing increased traction, the share of growth deals by value has declined. Growth deals fell to 37% of the total deals in 2018, compared to 51% in 2017.
“With global funds aggressively increasing their allocation towards India and large pension funds making direct investments in India, the investment appetite in recent years has increased significantly,” the report said.
The spike in buyout deals has led to large-sized deals.
“As the Indian PE/VC sector matures, deals are becoming larger and more complex with funds willing to take bigger bets,” it said. “The increasing number of buyouts is one of the major factors contributing to this trend.”
There were 78 deals of value greater than USD 100 million in 2018, aggregating to USD 26.2 billion and accounting for 73% of total PE/VC investments made in 2018. Meanwhile, there were eight USD 1 billion-plus deals in 2018 compared to four such deals in 2017 and one deal in 2016.
Overall, 2018 was a record year for PE/VC investments in India, with investments reaching an all-time high of USD 35.8 billion, the report said. In terms of value, investments increased by 37% compared to 2017, while deal volume increased by 29%.
The trend continued in 2019, with the year’s first quarter seeing USD 11.4 billion of PE & VC investments, eclipsing the previous Q1 high (2018) by 37%. There were 26 deals with investment amounts greater than USD 100 million, as against 13 such deals in Q1 2018.