Press release

9 Mar 2022

Large strategic and secondary deals propel exits 7x - an all-time high of US$43.2 billion: IVCA-EY report

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Related topics Private equity
  • Strategic exits recorded US$16.9 billion, 39% of all exit deals by value in 2021
  • Secondary exits reach an all-time high of US $14.4 billion in 2021, accounting for 33% of all exit deals by value.
  • 2021 records 44 PE-backed IPOs, which is the highest ever
  • Investments recorded an all-time high of US$77.1 billion
  • VC/start-up investments of US$28.5 billion in 2021, almost four times the value recorded in 2020 of US$7.3 billion

Mumbai, 09 March 2022: As per IVCA-EY latest report, PE/VC Agenda: India Trend Book 2022”, in 2021 PE/VC investments and exits recorded all-time highs of US$77.1 billion and US$43.2 billion, respectively. While the growth in PE/VC investments was driven by start-up investments of US$28.5 billion, growth in PE/VC exits was driven by large strategic and secondary deals worth US$16.9 billion and US$14.4 billion, respectively.

Vivek Soni, Partner and National Leader for Private Equity Services, says, “2021 was a record-breaking year for the Indian PE/VC industry. The low cost of capital and easy liquidity unleashed by the US and European Central Banks propelled PE/VC investment and exit activity to an all-time high.

Total PE/VC investment activity in 2021 was at US$77.1 billion, a 62% increase over 2020 levels. After the uncertainties during the first wave of the pandemic, PE/VC investments were on an uptrend in 4Q2020 and the deal velocity picked up pace, in size and volume, in the second half of 2021. The PE asset class (excluding infrastructure and real estate) demonstrated a growth of 79%. This year’s investment activity was dominated by start-up investing (US$28.5 billion, growth of 290%) and buyouts (US$22 billion, 86% growth over 2020).

Although three sectors – technology (US$16.3 billion), e-commerce (US$15.9 billion) and financial services (US$11.7 billion) accounted for 57% of the total PE/VC investments by value, many sectors like media and entertainment, education, pharmaceuticals, and healthcare showed significant growth. For the first time ever, 14 sectors notched up PE/VC investments exceeding US$1 billion.

The past decade was marred by a lack of large-scale exits which held back the narrative of India as an attractive PE/VC market despite the large market, fast-paced growth, and opportunities for capital deployment. This has changed in 2021 which recorded an all-time high of US$43.2 billion across 281 exits, rebounding smartly from a five-year low of US$6 billion in 2020. Large strategic deals, record levels of secondary trades and frantic IPO activity catapulted exits to 7x the value recorded in 2020 and 60% higher than the previous high of US$27 billion recorded in 2018.

The medium to long-term outlook for India is positive and the Indian PE/VC industry could reach US$100 billion in the next 2-3 years, potentially making it the third/fourth largest PE/VC market globally. However, the immediate outlook for 2022 is a bit hazy due to the inflationary pressures, imminent tightening by central banks, the uncertainty caused by the ongoing geopolitical conflict between Russia and Ukraine/NATO nations and the spike in crude oil prices and their resultant inflationary pressure. A lot will depend on the duration and severity of this conflict and how the will the crude price curve pan out. We remain cautiously optimistic about the performance of the Indian PE/VC industry in 2022.”

Rajat Tandon, President, IVCA, said “The PE, VC Ecosystem was supported relentlessly by the Government of India, especially in the last 2 years; Honourable Prime Minister met with the relevant PE, VC industry stakeholders last year in December and there were frequent industry interactions of IVCA and its members with the Honourable Finance Minister, Smt Nirmala Seetharaman, Commerce & Industries Minister, Shri Piyush Goyal, and all other regulators, policy makers. All of this combined for India - 2021 brought optimism after a pandemic stricken 2020, not just by recovering from the lows, but by bouncing back with the highest ever start-up funding, number of Unicorns, positive Budget announcements for the Start-up, PE, VC Ecosystem.”

In 2021, the Indian PE/VC industry ended with investments of over US$77.1 billion, as the frantic pace of deal making helped drive investment activity across all deal types, sizes, and sectors. 2021 PE/VC investments were 62% higher than 2020 (154% higher than 2020 excluding the one-off RIL deals), fuelled primarily by pure-play PE/VC investments that increased by 79% y-o-y (200% over 2020 ex RIL deals).

The Indian PE/VC investment activity followed the global trend which saw PE investment activity surpass the trillion-dollar mark for the first time[1]. The total value of global PE investments in 2021 was recorded at US$1.2 trillion, up 96% from 2020. The global economic rebound from the depths of the pandemic, widely available financing for deals, increased consumption levels and the growth in vaccination rates were all factors underpinning deal momentum throughout the year. Deal activity increased significantly across all regions, with the Americas recording a 125% increase in deal activity. Likewise, the value of deals was up by 81% in the Europe, Middle East, and Africa (EMEA) regions and rose 58% in the Asia-Pacific region.

While 2021 saw the continuation of some of the megatrends from the past decade like the growing dominance of mega deals, rebound in buyouts following a sharp decline in 2020, significant direct investments from pension funds and sovereign wealth funds, large investments in financial services, e-commerce and technology, some new trends emerged like, the dominance of start-up investments and India emerging as one of the fastest-growing start-up ecosystems, increase in pure-play investments, change in allocation between sectors as well as between sub-sectors within a sector, and investments in new themes/sectors like EV, media and entertainment and education.

PE/VC exits also recorded an all-time high of US$43.2 billion across 281 exits, rebounding smartly from a five-year low of US$6 billion in 2020.

This report dwells in detail on some of the new trends that emerged in 2021:

  • Diverging from the past trend when growth deals and buyouts dominated PE/VC investments, start-up investments emerged as the top investment segment, recording US$28.5 billion and accounting for 37% of all PE/VC investments in 2021. Investments in start-ups were a defining feature of 2021 which saw India overtake UK as the third-largest ecosystem for start-ups with 2021 recording 44 unicorns[2].
  • While most sectors recorded an increase in investments with 14 sectors recording over US$1 billion in investments, e-commerce and technology sectors received a disproportionate share of the deal flow both in terms of value and volume. Technology and e-commerce were the top sectors each witnessing a record level of investments of US$16.3 billion and US$15.9 billion respectively, accounting for 42% of investments by value. As a result, despite receiving the highest ever (US$11.7 billion) PE/VC investments in 2021, the financial services sector dropped to third place after being a leader in the previous decade.
  • As start-up and VC investments dominated 2021, new themes like edtech, electric vehicles, gaming, online streaming, and sports-based entertainment recorded a significant PE/VC investment flow of over US$10 billion. Some of the traditional bulge bracket PE funds like TPG, CVC, etc. made large outlays on these emerging themes that had traditionally seen small ticket VC funding.
  • The maturing of the Indian PE/VC market has seen PE funds emerge as quasi-conglomerates building businesses, PE funds now set-up investment platforms and adopt a buy-and-build approach. As a result, ad-on investments by PE portfolio companies have recorded an all-time high of over US$10 billion in 2021.
  • Exits via sale to strategics were the highest at US$16.9 billion (94 deals) in 2021 as large, cash-rich corporates, as well as PE/VC backed category leaders / platforms used the pandemic induced opportunity to consolidate market share and acquire new capabilities.
  • Secondary exits in 2021 were the highest ever both in terms of value and volume recording US$14.4 billion across 56 deals. With high global liquidity and low-interest rates lifting valuations across public and private markets alike, many PE/VC funds sitting on older vintage investments used this opportunity to exit long-held positions at reasonably good valuations.
  • PE-backed IPOs were at an all-time high with 44 IPOs raising US$13.1 billion and provided a major liquidity event for PE/VC funds which garnered US$5.1 billion in the offer-for-sale component of these IPOs.
  • A new trend amongst this year’s listings were IPOs from new-age start-ups including Nykaa, Policybazaar, Paytm, etc., overseas listing and listing via the SPAC route.

Outlook for PE/VC

PE/VC investments

Looking ahead, the PE/VC market in India will enter a markedly different environment with the imminent rise in interest rates, rising inflationary pressures, and potentially hawkish monetary policies with the winding down of stimulus programs. This is likely to impact the valuation multiples that have been at a record high over the past year and may see some downward revision in some of the over-heated segments.

The supply chain and rising inflation pressures have already had an impact on many of the portfolio companies of PE/VC funds and are expected to persist for longer than previously anticipated, thus making a focus on value creation more pertinent to ensure favorable exit multiples amidst margin pressures. This, along with ESG, could become the key areas of focus for PE/VC funds in 2022.

The medium to long-term outlook for India is positive, and the Indian PE/VC industry could reach US$100 billion in the next 2-3 years, potentially making it the third/fourth largest PE/VC market globally. However, the immediate outlook for 2022 is a bit hazy due to the inflationary pressures and imminent tightening by central banks as well as the uncertainty caused by the ongoing geopolitical conflict between Russia and Ukraine/NATO nations. We do need to worry about the spike in oil prices and other commodities over the short-to-medium term.

PE/VC Exits

High liquidity and low funding cost have ensured the availability of many buyers, especially for high-growth businesses. Further, with capital markets having strong momentum and reaching all-time highs the environment was also suitable for IPOs that enabled many PE/VC funds to take the IPO route for an exit at significantly higher valuations than available in the private market.

With large corporates acquiring start-ups to augment their e-commerce and technology capabilities, new pools of capital are now available to provide PE/VC investments with good exit opportunities. Deals like TATA’s acquisition of Bigbasket for US$1.2 billion are indicative of this emerging trend. While PE-backed IPOs were a hit among investors in 2021, the recent sharp correction in some recently listed start-ups in the initial months of 2022 has dampened the sentiment for IPOs from start-ups and other companies to an extent. However, this could potentially increase secondary transactions as many companies that had lined up to list in 2022 may now need to seek buyers in the secondary market.

With a better-than-expected Indian economic revival[3], successful vaccination drives and abating of the COVID pandemic, we expect 2022 to build on the momentum set in 2021. However, we remain cautiously optimistic given the significant rise in business uncertainty.

- Ends -

Notes to Editors

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About IVCA

The Indian Private Equity & Venture Capital Association (IVCA), is the apex body promoting the Alternative Investment Funds (AIFs) in India and promotes stable, long-term capital flow (Private Equity (PE), Venture Capital (VC) and Angel Capital) in India.

With leading VC/ PE firms, institutional investors, banks, corporate advisers, accountants, lawyers and other service providers as members, it serves as a powerful platform for all stakeholders to interact with each other. Being the face of the Industry, it helps establish high standards of governance, ethics, business conduct and professional competence.

With a prime motive to support the ecosystem, it facilitates contact with policy makers, research institutions, universities, trade associations and other relevant organizations. Thus, support entrepreneurial activity, innovation and job creation.