Private equity/venture capital (PE/VC) investments fell by 23% year-on-year in the June-September period to $6.7 billion despite a 29% increase in the number of deals, according to an EY India private equity deal tracker. This is also the most under-performing quarter in 2018, both in terms of investments and exits.
The largest deals in 3Q18 include Softbank, Sequoia, Lightspeed and others investing $1 billion in OYO Rooms, KKR’s $530-million buyout of Ramky Enviro and AION-JSW’s $400-million buyout of Monnet Ispat, the EY report pointed out.
However, overall investments this year are higher. “Year-to-date at $22.2 billion, PE/VC investments in India are higher by 17.4% and given some large deals in the pipeline, we are on the track to surpass the previous year high any major macro setbacks notwithstanding,” the report said.
On a sequential basis, the value of investments fell 11% and 16%, compared with 2Q18 and 1Q18, respectively.
“The decline in investments was mainly on account of fewer large deals (deals with value greater than $100 million) in 3Q18. 3Q18 recorded 13 large deals aggregating $3.9 billion, compared to 18 such deals in 3Q17 aggregating $7 billion. 2Q18 recorded 25 large deals aggregating $6.1 billion, while 1Q18 recorded 13 large deals aggregating $5.7 billion,” the report stated.
Vivek Soni, partner and national leader – private equity services, EY India, said the third quarter data and discussions with PE/VCs suggest that investors are turning cautious. “Macro headwinds like rising crude oil prices, depreciating rupee, talk of trade wars, etc have increased uncertainty.
Liquidity-related issues attributed to NBFC sector and the pronounced sell down in listed financial services stocks have also weakened the sentiment. It is possible that the upcoming 2019 general elections, the slowly evolving NPA situation and the developing situation around select NBFCs may influence investors to consider taking a wait-and-watch approach in the short-term,” Soni said.
PE/VC exits have also suffered in 2018 due to volatile markets. Excluding the Flipkart deal at $1.3 billion, exits declined by 71% on a Y-o-Y basis in 3Q18, making it the worst-performing quarter in 2018 for exits.
Though exits via strategic sale were the highest ever at $16.1 billion (16 deals), it was mainly on account of the single large $16 billion Walmart-Flipkart deal. Exits via secondary sale (sale to other PE funds) recorded $390 million (7 deals), 73% lower compared to 3Q17 in terms of value, the report said.
Volatility in the markets continued to impact open market deal activity as well as PE-backed IPOs. The quarter recorded just 14 deals worth $647 million, compared with 32 deals worth $1.5 billion in the same period last year.
The IPO market also recorded muted performance with just two PE-backed IPOs in the quarter under review which include TA Associates selling its 11% stake in TCNS Clothing for $72 million and Micro Ventures selling its stake in Credit Access Grameen for $72 million.