PE investments in India in Q4’12 (Oct-Dec ’12) drop 74%

• Reformatory steps from the government provided a big fillip to investors’ sentiments
• Despite the sluggishness in new investments, it is anticipated that 2013 will bring more cheer and active investments by PE funds
• PE exits were worth 2,024 million USD from 20 deals in Q4 ’12

Mumbai: PE firms invested 1,010 million USD across 82 deals in the last quarter (Oct-Dec) of 2012 – a decrease of 74% in value and 24% in volume, as compared to the previous quarter (i.e., Q3 ’12). For the last three years i.e., starting 2010, investments in the fourth quarter have always shown a decrease as compared to the third quarter. In comparison with Q4 ’11, there has been a decline of 32% in terms of both value and volume of deals. The findings are part of the fourth PwC MoneyTree™ India report, a quarterly study of private equity investment activity based on data provided by Venture Intelligence.

With 30 deals worth 167 million USD in Q4 ’12, the information technology (IT) and IT enabled services (ITeS) sector continues to be the leader in value as well as volume. The sector has seen the highest level of PE funding and number of deals in this quarter. The investment in this sector constitutes 17% of the total investment value and nearly 37% of the total number of deals in this quarter.

Sanjay Dhawan, Leader, Technology, PwC said, “In the IT services segment, we have seen investments in mid-tier companies, who primarily have niche service offerings and PE firms are cherry-picking such opportunities.  As a corollary, plain vanilla IT services segment may not attract much investments in the near future.

On the other hand, due to the growing popularity and acceptability of online services as a sales channel in India, the business model of such companies has become more acceptable and their potential revenue pipeline more convincing. As a result, we are witnessing increased interest by PE companies in this segment, typically entering as early-stage investors.

The IT services segment recorded the highest investment amid other sub-segments, with an investment of 70 million USD from three deals. The online services segment received the second highest level of investment worth 49 million USD from 10 deals, which is the highest in terms of volume this quarter.

According to Sanjeev Krishan, Chairperson, PwC in India, “Reformatory steps from the government, provided a big fillip to investors’ sentiments during Q4. The revival in the stock markets also helped. Interestingly, this did not reflect in investment from PE funds, either because private equity players are still waiting to be convinced about the government’s real intentions or simply because PE funds were more focused on exits,” Sanjeev added.

In terms of investment value, the agri-business sector stood second, generating 146 million USD from four deals. This is a growth of 18% in value with the same number of deals as compared to Q3 ’12.

The education sector recorded eight deals worth 55 million USD, a five-fold increase in the value of investment with five additional deals in this quarter. 

The shipping and logistics sector witnessed two deals worth 48 million USD, a more than three-time increase in the value of investments with one additional deal in this quarter when compared to an investment of 15 million USD from a single deal.

The textiles and garments sector has reported four deals worth 35 million USD in this quarter. The sector had not seen any investment in the last quarter.

Among the key sectors, in addition to IT and ITeS, the fast-moving consumer goods (FMCG), engineering and construction (E&C), BFSI, manufacturing and healthcare and life sciences sectors have all reported a considerable decline in the value of investments in this quarter as compared to the preceding quarter.

In Q4 ’12, private investments in late stage deals recorded the highest value with 494 million USD from 19 deals, an 11% increase in value, while the volume of deals have shown a 17% decline as against the previous quarter. As compared to Q4 ’11, the investments have gone up by about 40% in Q4 ’12.

Private investments in public equity (PIPE) deals (worth 208 million USD) have shown a drop of 85% in value and 7% in volume this quarter. However, when compared to the same period last year i.e. Q4 ’11, they have shown a significant increase of 27% in value.

By region, the National Capital Region (NCR) surpassed Mumbai in this quarter again as the top region with funding of 318 million USD (a 31% share of the total PE investments) from 16 deals.

Mumbai, too, witnessed a drop of 84% from the previous quarter in terms of value and a 38% decline in terms of number of deals as compared to the previous quarter. Even when compared to Q4 ’11, the investments in Mumbai showed a decline of almost 4% in value and 28% in volume.

Private equity exits

The exit activity in this quarter has grown over four-times in value despite a 20% decline in volume as compared to the previous quarter. In Q4 ’12, PE exits were worth 2,024 million USD from 20 deals as compared to Q3 ’12 when PE exits were worth 452 million USD from 25 deals. When compared to the same period last year, there has been a five-fold increase in value with 11% increase in number of deals in this quarter.

In this quarter, almost 44% of the exits by value have been through a public market sale (893 million USD) from six deals.  Exits by IPO reported the next highest value at 854 million USD from two deals. The preferred modes of exits in this quarter have been through strategic (nine exits) and public market sale (six exits).

The BFSI sector tops the list for PE exits with four deals worth 984 million USD. This constitutes 49% of the total deal exit value. This is in contrast to the previous quarter where the BFSI sector posted six exits valued at only 109 million USD.

In terms of exit value, the telecom sector stands second with 756 million USD from a single deal in this quarter as compared to the last quarter.

The IT and ITeS sector recorded 19% growth in terms of value (50 million USD) with the same number of deals (three) in this quarter.

Notes to editors:

1. 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.
2. The top 20 deals comprised 72% of total deal value in Q4 ’12. The top three deals constituted 38% of the total top 20 deal value.   About 96% of the deals in this quarter are below the value of 50 million USD.
3. The top two exits comprised 79% and the top five constituted close to 87% of the total exit value in Q4 ’12.

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