PE deals picking up pace as India Inc strives to raise funds in tough times

Aug 10 2013, 05:05 IST
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SummaryIndia’s weak macro environment may have put off many an investor, but deals being struck by private equity players have actually picked up pace.

India’s weak macro environment may have put off many an investor, but deals being struck by private equity players have actually picked up pace, perhaps due to urgency of Indian corporates to raise equity capital in a tough funding environment.

PE firms have invested $5.9 billion across 204 deals between January and June this year compared with $3.8 billion invested across 219 deals in the same period last year, according to advisory firm Grant Thornton’s “Dealtracker” report — a 55% year-on-year increase. Most of this funding has gone into sectors like information technology and related services, real estate and manufacturing.

The size of the deals has also gone up in the first half of 2013, which is evident from the rise in number of deals above $200 million. Six deals over $200 million were closed during the period versus just one deal above that range in the first half of the previous year. Experts believe that large deals will be the norm this year.

“In the past, buyouts were very difficult and most investors shied away from it. PE players had a minority role in a company for a long time. But they soon realised that there are more challenges in exits with less rights and new players are now open to do controlled transactions. This interests the promoters as well as buyout offers them a good value,” said Siddharth Shah, partner at legal advisory firm Khaitan & Co. “Also, since the IT-BPO sector is seeing consolidation, buyouts will be higher in the sector.” IT and ITes attracted 10% of the total PE investment by value in the first half of this year.

The faster deployment of capital is partly due to dipping valuations as promoters become more realistic about their ability to raise funds in an environment where the secondary markets are sluggish and the cost of debt is high. “Few factors have helped faster deployment of capital like the valuations having come down to a more reasonable level. Until last year, valuation expectation continued to remain high in the hope of capital market revival for an IPO but the promoters soon found PE investment a viable option,” said a fund manager of a large PE firm who did not wish to be identified.

At the same time, previous investors are keen to show returns through exits. “Many PE funds had raised capital in 2003-04 and by 2013 their fund

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