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Private equity opportunities in emerging markets: Private Equity in India - EY - Global

Private equity opportunities in emerging markets

Private equity in India

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Trend in PE investments

Trend in PE investments

Sources: VCCEdge, Asian Venture Capital Journal (AVCJ) and EY research

Note: deal value considers deals where values have been disclosed, while the deal volumes consider all the deals announced in respective quarters.

With this region’s long-term growth story still intact, private equity funds will continue to view India as a positive market long-term.

Q4 2011 shows high deal volume but low deal value

The last quarter of 2011 witnessed the lowest quarterly aggregate PE deal value of 2011 at US$1.8b. This trend reflects fewer large deals (greater than US$50m). Unsurprisingly, the slowdown in activity for large deals is a result of caution in the face of a weak global and domestic economic outlook.

The year 2011 started on a high note, with deal buoyancy carried forward from late last year with overall activity for the year greater than 2010. The first two quarters of 2011 saw record levels. However, the second half witnessed a steep decline in investment value compared to the first half.

A notable difference, however, was the number of deals, which stayed elevated across 2011. This was due to an uptick in early-stage investments in 2011. Many VCs showed a strong interest in start-up companies, reflecting their confidence in the innovative ideas in play.

PE exits declined in Q4 2011, with aggregate PE exit volume and value declining by 45% and 62%, respectively, compared to Q3 2011.

Overall, exit activity significantly lagged behind investment activity for the year. Moreover, the majority of exits were non-IPO, with only one PE–backed IPO. Significant depreciation in the rupee during Q4 2011 did not help the difficult exit conditions.

Trend in PE investments

Trend in PE investments

Eight announcements of successful fund closures were made in Q4 2011, primarily led by domestic PE firms, totaling US$0.8b, up from US$0.5b in Q3 2011. Furthermore, a total of 17 new India-focused PE/venture capital (VC) fund-raising plans were announced during Q4 2011, targeting a total of US$7.5b — the highest quarterly value for 2011.

In 2012, PE activity is expected to be moderate for the short term. However, with India’s long-term growth story still intact, private equity funds will continue to view India as a positive market long-term.

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