PE investments fall to $1.4 b in Feb

Volatility in the equity market seems to have hit the sentiments in private equity (PE) space, as according to EY’s private equity monthly deal tracker Feb 2018 recorded investments worth just $1.4 billion across 63 deals ﷓ a sharp decline compared to previous month in the absence of any mega deal (deal value greater than US$300 million). Exits also recorded a significant decline of over 70 per cent in terms of value and over 50 per cent in terms of volume, primarily on account of fewer open market exits.

Vivek Soni, partner and leader for private equity advisory, EY said: “Deal activity clearly suggests that PE/VC (venture capital) investors have taken a breather in February 2018 after a hectic Jan. Global volatility spiked in early February, equity indices globally corrected, and India was no exception. Given the recent announcements by the US on trade tariffs, global volatility could continue well into Mar 2018.

“While PE/VC investing is about the long-term, volatility does impact investor sentiment and consequently the timing of investments and exits. In our view, the India investment thesis for PE/VC investors is stronger than ever before. The data suggests that the underlying trend of a steady increase in value of PE/VC investments, exits and average deal size remains intact,” he added.

In Jan’18, there was a large investment of $1.7 billion in HDFC by a group of investors including GIC, KKR and others. On a year-on-year basis investments grew by 256 per cent ($393 million in Feb 2017). In terms of volume, investments grew by 17 per cent compared to Jan 2018 and were more than twice the number of deals recorded in Feb 2017.

There was moderation in exits as well in February with just 12 exits worth $234 million, a decrease in both value and volume compared to the previous month as well as Feb 2017. In terms of value, exits declined by over 70 per cent compared to January 2018 as well as the same period last year. In volume, there was more than a 50 per cent reduction compared to January 2018 and February 2017. This was primarily on account of decline in open market deals. There were just four open market exits in February 2018 ﷓ the lowest in over 22 months accounting for $97 million. In comparison, February 2017 had recorded 12 exits via open markets worth $445 million.

However, Harish HV, partner, India Leadership team, Grant Thornton India LLP, is optimistic about PE investments. “On the reforms and regulatory front, 2017 was an action-packed year with various initiatives aimed at driving economic stability. We believe these efforts will boost long-term investors’ confidence and help in creating a platform for a new era of PE/VC activity in Indian corporate landscape, where they take larger roles, higher stakes and greater exposure in the long-run. I am hopeful that 2018 will surpass 2017 in terms of deal activity and overall investment sentiments. We are looking at a mega deal for a billion dollar plus management buyout (MBO) which could be a first in this market. This will set the stage for more such transactions in future,” he said.