Global private equity players are no longer bullish on Indian companies. In the first six months of this year, according to data released by Grant Thornton, there were only 93 deals with an announced value of just $2.89 billion, the lowest ever since 2004. On the contrary, during the same period last year, 185 deals were finalised by them?valuing $6.93 billion. The average private equity deal has shrunk from $37.43 million in 2008 to $31.04 million now, indicating that they are no longer willing to bet big on Indian companies.
During the market bull-run, private equity firms were on a frenzied shopping spree fuelling valuations across the board. Infact, from 2004-08, they had invested over $40 billion in Indian companies of all hues?the monies were raised and deployed faster than one could even blink. But with the market meltdown, they saw returns on their portfolio decline by over 70% and many were struck as the primary market went on a freeze. Some even went on distress sale to get whatever little they could recover. With delayed exit, the internal rate of returns that averaged around 35-40% in the past has come down to around 20% now.
Among the deals that were struck in the first half of this year, real estate and infrastructure management still dominate, with 16 deals accounting for $1,613.13 million in announced value. This was followed by 14 deals in IT & ITes and 7 in the banking space. Though real estate has been the most badly affected sector in the slowdown, private equity players are still bullish on the revival of this sector because of the large demand-supply gap in the country. In the past, the real estate sector has been a favourite among private equity players and has seen at least two of the top five deals over the past three years. Even in the first six months of this year, four of the top five deals took place in this sector.
Much of the investment was routed through the QIP route where real estate companies like Unitech and India Bulls raised over $1 billion in one month alone to fund their working capital needs. Also the big push by the government in infrastructure projects will fuel some interest in this space in the medium-term. Interestingly, the top five deals accounted for over 53% of the total value in the first six months, as compared to 27% in H1 2008 and 31% in H1 2007 respectively. The average value of the top five deals in H1 2009 was $247.29 million compared to $373.74 million and $425 million in H1 2008 and H1 2007 respectively.