PE investments touch a record $26 billion in 2017

Investments by private equity and venture capitalists (PE/VC) in India grew to a record $26 billion in 2017. The figure is the highest amount ever invested during a calendar year by PE/VC, according to Bain & Company’s ‘India Private Equity Report 2018’.

2017 was a good year for PE/VCs in the country with exits increasing by more than 60% to $15.7 billion in terms of value, making it the best year ever for these.

“Exit momentum continued to be robust, indicating healthy and strong public markets in India. Initial public offerings are the primary exit mode in India. More than 200 exits took place in 2017,” the report states.

While the value of exits increased 60%, the actual number of exits only increased by 7% to 211, indicating that a few large exits helped the overall value. The top 10 exits by PE/VC in companies like Bharti Airtel, GlobalLogic and ICICI Lomard helped account for 40% of the total exit value.

Further, fund-raising for India-focussed funds also increased 48% to $5.7 billion, last year.

“2017 was a strong year for the private equity market for the private equity market in India. Improving economic indicators, formalisation of the economy and a a proactive government addressing the non-performing asset issue are all contributing to India sustaining as an attractive destination of private equity investments,” said Arpan Sheth, partner Bain & Company.

The quantum of PE/VC investment rose in 2017 despite a 30% drop in the actual number of deals to 682 as compared with 976 in 2016, indicating that a few large deals helped increase the overall investment value. In fact, the top 15 deals in 2017 accounted for almost half of the $26 billion invested by PE/VCs.

In terms of the areas of investment, consumer technology as well as banking, financial services and insurance (BFSI) were the largest receivers of the investment during 2017. Big ticket consumer technology deals like Flipkart getting $2.5 billion of funding, Paytm’s $1.4 billion and Ola Cabs’ $1.1 billion helped ensure average deal sizes in 2017 was $47.1 million as compared with $17 million in 2016.

Last year also witnessed sovereign wealth funds like the Canada Pension Plan Investment Board, Government of Singapore Investment Corporation, CDPQ, Abu Dhabi Investment Authority and Ontario Teachers’ Pension Plan contributing to 20% of the deal value as they increased their activity.

In a sign of healthy equity markets, the share of public market sales including IPOs rose to 50% in 2017 when counting the number of exits. Here again, consumer tech and BFSI were key sectors for the exit activity, thanks to exits by Tiger Global ($1.3 billion), SAIF Partners ($0.82 billion) and Fairfax ($1 billion). The telecom sector saw one large exit ($1.4 billion) by Qatar Foundation Endowment which exited Bharti Airtel Ltd in an open market transaction.

While 2017’s numbers were encouraging, Bain & Company’s reports indicates that there is some cause for concern. “Fund houses Bain spoke with believe that the number of secondary and strategic sales will increase. But a mismatch in valuation expectations and maintaining high-level returns could hinder exits, according to funds with whom we spoke,” the report states.