Private equity and venture capital firms invested an impressive $3,296 million across 83 deals in India during the first quarter of 2011. As per the latest data released by Venture Intelligence the amount invested during Q1 2011 was higher than the PE/VC investment during the corresponding period last year which witnessed $2,133 million invested across 81 deals and over twice that of the immediate previous quarter with $1,515 million across 83 deals. Interestingly, the median size of investments during Q1 ?11 was $14.5 million, compared to $11.5 million in the same period in 2010.
Experts point out that the trend of median deal size going up is a positive indication. Sanjeev Krishan, Executive Director PwC points out that as economic activity improves the deal size is bound to go up, especially if one looks at infra sector, all deals within the infra space happen at the top end. And this was evident as led by big-tickets investments from infrastructure funds like the 3i India Infrastructure Fund and the SBI-Macquarie fund, the Energy and Engg. & Construction industries attracted the most dollars after Manufacturing and BFSI during Q1?11.
With 21 deals worth $577 million the IT & ITES industry received maximum number of investment in Q1 ?11. Krishan points out that this heightened activity in IT & ITES is here to stay. ?The overall scenario in IT is improving which offers good growth prospects for investors. There will be consolidation in the IT industry which will offer space to bigger IT firms or PE firms to buyout smaller players and there will also be a scenario of two-three companies coming together and making a bigger platform thereby attracting substantial investment from PE players.?
Vikram Hosangady , executive director (transaction services) at KPMG India confirms, ?IT and ITES is seeing renewed interest given that their largest customer the US market is showing recovery and that increases visibility for growth. As regards PE investments, it will be an opportunistic play where a PE backs an existing player which is pursuing large inorganic opportunities eg Apax which invested into Patni. Additionally there could be traction in PE portfolio companies where the PE?s are keen to sell to a strategic player. Finally there could be consolidation in the tier 2 and tier 3 IT services cos which could also result in PE?s coming in as financial investors.?
Next in line after IT & ITES was Manufacturing with 13 deals worth $1,087 million and BFSI at 7 deals worth $423 million. The largest PE investment during Q1 ?11 was the R4,500 crore (about $1 billion) commitment by Bain Capital and Singapore?s GIC to Hero Investments, the Hero group holding firm which is to buyout Honda Motors? 26% stake in listed 2-wheeler maker Hero Honda. Following suit was Apax Partners? $375 million commitment to iGate to help buyout fellow listed IT Services firm Patni Computers.
The exit scenario was equally interesting as per the Venture Intelligence data with 14 exits including one IPO of PTC Financial. The notable exits via M&A during the period was the acquisition of publicly listed Patni Computers by fellow IT Services firm iGate, which fetched PE investor General Atlantic $254 million (for its 17.4% stake). Also, UK-based Pearson?s decision to enhance its stake in education services firm TutorVista from 59% to 76% provided a healthy exit route for TutorVista?s VC investors ? including Sequoia Capital India, Lightspeed Ventures and SVB – who had invested about $30 million in the firm starting in mid 2006.