Start-ups continue to make the highest contribution to private equity (PE) and venture capital (VC) deals in 2016, receiving the maximum investment of $2.5 billion, which constitutes 70 per cent of the transaction volumes. However, the investment value in start-ups declined by more than 50 per cent this year.
Grant Thornton in India’s The Fourth Wheel 2017 report in association with Indian Private Equity and Venture Capital Association (IVCA), stated that values and volumes of PE and VC investments were lower in 2016 due to lack of the big-ticket investments that were made in the previous year. PE and VC investors invested $14 billion in 971 deals in 2016 while $16 billion was invested in 1,045 deals in 2015.
This is the first decline in PE activity in the last four years.
The report says that the investment values in start-ups declined by more than 50 per cent this year, signifying rationalisation of investments and start-up valuations. However, the government’s push on digitisation and initiatives under the Startup India plan are likely to lead to a rebound in this segment.
Apart from start-ups, the other sectors that have witnessed the maximum transactions were telecom, banking and financial services, real estate, IT/ITeS and manufacturing. These sectors along with start-ups contributed around 78 per cent of the overall deal value in 2016.
The year 2016 also had seen a significant increase in the number and the value of buyout deals from 2012 to 2016, with the value of buyouts clocking almost four times in 2016 when compared to 2015. Also, 2016 witnessed substantial activity in exits especially through intitial public offferings, which augurs well for the investor community.
The report highlights that the fund-raising activity in the PE and VC space witnessed a decline of six per cent in 2016. PEs and VCs raised closed to $24.1 billion in 2016 as compared to $ 25.7 billion in 2015.
Harish HV, Partner, India Leadership team at Grant Thornton India LLP, said, "Although 2016 saw a decline in PE activity, we are hopeful for 2017. It could be the year of reckoning for the country where implementation of structural policies and reforms such as the GST and the recently announced measures in the Union Budget 2017, by way of massive push to the infrastructure sector, plans to integrate the transport architecture, renewed focus on affordable housing and a boost for ease of doing business will drive growth. Also, expected improvements in the banking sector, pick up in the rural demand, post the effect of demonetisation, a robust primary market and improving capacity utilisations across industries are likely to drive domestic economic activity. Amidst global uncertainties arising due to Brexit, protectionist policies proposed by the US and a slowing Chinese economy, India continues to be the bright spot. India is likely to drive resilient growth in deal activity in 2017."