How the PE/VC investments market played out in 2017


The Indian private equity market recorded its best year in 2017; exits reached their highest levels, increasing by more than 60 percent to $15.7 billion in value, and the trend will to continue in 2018.

The private equity market in India saw a record year in 2017 with $26 billion in PE/VC investments, the highest amount ever. The top 10 players were involved in almost two-thirds of the deals by value, according to Bain & Company’s recent India Private Equity Report 2018.

The total investments this year represent a 60 percent increase over 2016.

Exits also registered their best year, growing by more than 60 percent to $15.7 billion in terms of value, signaling confidence by investors. The public market was the preferred exit mode, which can also be seen as a measure of confidence in the Indian markets.

India continued to be an attractive destination for investments, as India-focused funds increased by 48 percent, raising $5.7 billion on aggregate. Fund-raising is also seen as a higher priority for investors in 2018, with many expecting the environment to remain stable.

Arpan Sheth, Partner, Bain & Company, and one of the lead authors of the report, said: “2017 was a strong year for the private equity market in India. Improving economic indicators, formalisation of the economy, and a proactive government addressing the NPA issue are all contributing to India sustaining as an attractive destination for PE investments. This year witnessed a strong growth (48 percent) in India-focused fund raising, and it was the highest ever for both PE exits (~$16 billion) and PE investments ($26 billion).”

Fund sources continued to diversify with sovereign wealth funds and pension funds participating in about 20 percent of the total deal value. Additionally, new asset classes and fund types also continued to scale and emerge in India.

Registered alternate investment funds (AIFs) were a significant contributor to the overall fund raising, which helped raise $5.1 billion in 2017, more than double that in 2016.

Rising confidence

Investor confidence in India grew as a result of regulatory action and government stimulus to address nonperforming assets (NPAs) and a growing formal economy coupled with unification of taxation under the new GST, the report observed. On the back of the improvement of the economic scenario, M&A activity in India increased 53.3 percent to $77.6 billion in 2017 while private equity (PE) deals reached $24.4 billion.

Indian companies raised $24.9 billion through the primary market in 2017.

India remained a hotbed for deal making in 2017. Apart from the deal size, the number of active players in the Indian market increased from 474 between 2014 and 2016 to 491 during the 2015 to 2016 period, mainly due to an increase in institutional investors.

Consumer tech, BFSI, and telecom accounted for a value increase of about 60 percent while manufacturing and IT/ITeS activity slowed. Significantly,

India’s median deal multiples value reached a record high—higher than Asia-Pacific’s.

Deal competition

The report noted that competition for deals is increasing, with growth in the number of participating funds and PE funds developing pockets of strength across sectors and regions. The top 15 deals contributed 50 percent of the total investment value against 30 percent in 2016, where foreign funds were largely the source of these investments.

Since 2016, the average deal size increased 95 percent for deals greater than $10 million, driven by big-ticket deals in consumer tech and BFSI.

Exits were driven more by transaction value than an increase in deal volume, and more than 200 exits took place in 2017. The total exit value grew by more than 60 percent to $15.7 billion, while the number of exits increased 7 percent. The top 10 exits together constituted 40 percent of total PE exit value in 2017, slightly lesser than in 2016 (45 percent).

Mapping the 2018 landscape, the report added, that making new deals is the top priority for funds this year. More funds are participating in the India market, particularly limited partners investing directly. Most investors expect to offer more co-investment opportunities to limited partners in 2018. This could potentially be one of the moves to ensure that limited partners continue to invest in funds and decrease risk.

More exits likely

India focused funds believe that competition from limited partners investing directly with regional and local funds is a key concern. Funds also expect financial services, consumer products and retail to see the most investment activity in 2018.

Considering the way India’s economy is poised for growth in the coming year and with capital markets on an upswing, Bain & Company expects many more exits in the next few months. Fund houses Bain & Company spoke with believe that the number of secondary and strategic sales will increase. Most funds expect a moderation in valuations and returns to decline by 2 percent to 4 percent in the coming three to five years.

According to India-focused fund managers, a mismatch in valuation expectations between investors and firm owners hinders deal making, while a high level of returns could hinder exits. They also believe that leadership issues at portfolio companies are common and have a major effect on value creation.


Updates from around the world