Private equity investment in India – 2010 Trends and Statistics

Private equity investment in India has rebounded after a lull due to global financial meltdown with energy sector being the biggest draw, leading chamber ASSOCHAM said today.

Trends in Private Equity Investment in India

In calendar year 2010, private equity and venture capital firms invested 7.97 billion dollars in 325 deals (excluding real estate) as against 4.07 billion dollars in 290 deals during the previous year.

The energy sector was the biggest draw with 34 investments worth 2.14 billion dollars while IT and ITeS with 79 investments worth 696 million dollars topped in terms of volume, said The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

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Banking, financial services and insurance with 44 investments worth 1.04 billion dollars stood second on both counts.

Buyback was the preferred route last year with deals worth 1.7 billion dollars. The next preferred routes were open market (1.5 billion dollars) and M&A’s (1.2 billion dollars). Exits totalling five billion dollars took place in 2010 through 164 deals against 103 exit deals worth 2.1 billion dollars in 2009.

While the industry has witnessed difficult times, five Indian funds managed to raise 1.5 billion dollars, highlighting the fact that limited and general partners look at diversification of risk across industries and geographies – given a fund’s teamwork and potential – not only individual track records.Private Equity Investments in India

The ASSOCHAM said India could well do with more pure-play specialist infrastructure funds with long-term investment horizon and reasonable return expectations (in the mid to late-teens). While a couple of SPV-level investors are currently operating in the country, there is room for more such players. These funds globally list themselves to provide an exit opportunity to investors without the fund having to exit the underlying investment through an IPO or otherwise.

With valuations now stabilised and bank finance difficult to come by, general partners report a renewed interest in private equity deals on the part of business owners. The chamber said there will be increased interest from foreign companies looking at buyouts in India as they are aggressively looking to expand growth markets. They are willing to pay a premium for the right assets and Indian promoters see them bringing in vast experience and technology apart from capital.

But buyout opportunities will be limited by ownership structure of Indian businesses. Most are family-owned and although their shareholding founders are now willing to exchange equity for cash, they wish to retain control. Thus majority of PE deals are minority investments rather than buyouts.

However, there will be more exits in 2011 as compared to previous years as portfolio companies are getting matured. A good number of secondary sale investments are likely to happen, ASSOCHAM said.

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