Vivek Soni, Partner and National Leader - Private Equity
Services, EY India, said, “After a good start to PE/VC investments in 2020, both investment and exit activity have declined considerably in February 2020. The decline in value of PE/VC investments is primarily on account of the number of large deals (over $100 million) going down substantially.
Over 70 per cent of overall Indian PE/VC investments in the past three years are accounted for by over $100m deals, which are primarily funded by foreign capital managed by global / regional GP’s and sovereign wealth funds / pension funds.
The rapid global spread of the pandemic over the past 30-45 days has spiked business risk premiums, which has already led to significant downward correction in capital markets around the world, bringing high volatility to the home markets of global/regional GP’s and sovereign wealth funds / pension funds that have been making investments of more than $100 million in India. Further, travel restrictions and inability of people to meet face-to-face is expected to delay work-in-progress deals and limit the number of new deals from being struck.
"We believe the above, coupled with domestic issues concerning taxation policies impacting InvIT’s and REITS and lingering issues over the financial health of some of our domestic banks and NBFCs, will act as sentiment dampeners, potentially slowing down large ticket PE/VC investments in the short term. In the medium term, as valuations moderate, we expect this dislocation to open up good opportunities for PE/VC investors,” said Soni.
There were 5 large deals worth $700 million in February,2020 compared to 9 deals worth $2 billion last year and five deals worth $1.4 billion in January 2020. This is the lowest aggregate value of large deals in over 19 months. The largest deal announced in February saw General Atlantic invest $200 million in BYJU’S, an edtech company, followed by Warburg Pincus’ investment of $150 million in Apollo Tyres Limited.
In terms of deal type, in February 2020, growth capital deals were the highest in value with $677 million recorded across 15 deals, recording 55% y-o-y decline ($1.5 billion in February 2019) followed by start-up investments worth $562 million across 44 deals, 3.6x higher y-o-y ($154 million in February 2019) and PIPE investments worth $260 million, 40% y-o-y decline ($431 million in February 2019). Buyouts recorded investments worth $209 million across three deals compared to $187 million across two deals in February 2019.
From a sector point of view, education sector ($311 million across five deals) has emerged as the top sector for the first time due to the large investment in BYJU’S, followed by technology ($271 million across 18 deals) and real estate ($232 million across three deals). Financial services, that has traditionally been one of the top sectors, was relegated to the fifth place with $162 million invested across nine deals.