- 3Q22 recorded US$8.3 billion in PE/VC investments across 238 deals, a 69% decline y-o-y
- 3Q22 recorded US$4.4 billion in PE/VC exits across 61 deals, a 48% decline y-o-y
Mumbai, 20 October 2022: According to the IVCA-EY monthly PE/VC roundup, 3Q22 recorded investments worth US$8.3 billion across 238 deals, including 16 large deals worth US$5.1 billion. Exits recorded US$4.4 billion across 61 deals in 3Q22, including open market exits worth US$2.3 billion.
Vivek Soni, Partner and National Leader, Private Equity Services, EY said, “3Q22 recorded US$8.3 billion in PE/VC investments, 68% lower than the investments in 3Q21 and a 55% decline sequentially. 3Q22 has recorded the lowest quarterly value of investments since 1Q20. While the PE/VC investment flows into India were robust in the initial months of 2022, maintaining a monthly average run-rate of ~US$5 billion, they declined sequentially over the past six months, barely recording US$2 billion in each of the past two months.
All deal segments except Private Investment in Public Equity (PIPE) recorded a sharp decline in PE/VC investments. On a y-o-y basis, growth deals recorded the largest fall in PE/VC investments of 84% to record US$1.2 billion across 36 deals, the lowest value of quarterly investments in more than 17 quarters. Start-up investments, with US$2.8 billion invested across 160 deals, recorded a 73% decline and buyouts at US$2.6 billion across 14 deals recorded a 59% y-o-y decline. PIPE investments recorded US$1.5 billion across 11 deals in 3Q22, a 19% increase y-o-y.
PE/VC exits were also lower by 48% on a y-o-y basis and by 20% sequentially in the absence of large strategic and secondary deals. The decline in exits was across all deal segments, with IPOs recording the sharpest fall, followed by secondary and strategic exits. 3Q22 had just one PE-backed IPO with US$30 million in exit proceeds compared to 15 in 3Q21 (US$1.4 billion). Secondary exits with US$1.2 billion recorded a 65% y-o-y decline and strategic exits recorded US$739 million, a 32% y-o-y decline.
Most of the traditionally favorite sectors for PE/VC investments saw a sharp fall in investments. Infrastructure and healthcare were the only major sectors to record an increase in PE/VC investments. The infrastructure sector received maximum PE/VC investments in 3Q22 at US$2.6 billion across 12 deals, a 63% increase y-o-y. The traditionally favorite sectors like technology and e-commerce recorded 88% and 96% decline in PE/VC investments, respectively. Though the financial services sector received the second highest value of PE/VC investments in 3Q22, at US$2.1 billion, it declined by 44% on a y-o-y basis.
After a multi-year bull run, over the past 4-5 months, private equity investment and exit activity globally has been weighed down by inflation woes, recession fears, the rising cost of capital and elevated levels of uncertainty driven by geopolitical reasons. In India, investors have reset their valuation appetite, but sellers have yet to get there, leading to a bid-ask spread in most transactions, which has delayed and in some cases, derailed PE-backed transactions negotiated pre-March 2022. It will take time to narrow this gap, and we think in 2022, India could witness a 25-35% drop in annual PE/VC investment value after six consecutive record-breaking years. The Start-up space will witness consolidation across all sub-segments as high-burn companies struggle to raise funds and have no option but to sell to their well-funded peers. Structured trades will increase as a means of bridging valuation gaps and with the days of low cost of capital behind us, an active value creation agenda is expected to occupy top-of-mind recall for funds and portfolio companies.”
Investments
PE/VC investments in 3Q22 were 68% lower than in 3Q21 and 55% lower than 2Q22 (US$8.3 billion in 3Q22 vs. US$26.1 billion in 3Q21 and US$18.3 billion in 2Q22). 3Q22 recorded the lowest quarterly value of investments since 1Q20 when the COVID-19 pandemic hit.
In terms of the number of deals, 3Q22 recorded a 42% decline compared to 3Q21 and a 33% decline compared to 2Q22 (238 deals in 3Q22 vs. 411 deals in 3Q21 and 353 deals in 2Q22). The decline in PE/VC investments was precipitated by a decline in both value and volume of deals, especially a sharp decline in the number of large deals.
3Q22 recorded just 16 large deals aggregating to US$5.1 billion compared to 59 large deals aggregating to US$20.9 billion in 3Q21 and 46 large deals aggregating to US$13.2 billion in 2Q22. The largest deals in 3Q22 include the investment of US$1.1 billion in Yes Bank by Advent and Carlyle for a 20% stake and the Edelweiss Infrastructure fund’s buyout of eight road projects from L&T for US$886 million.
Pure play PE/VC investments (i.e., excluding investments in real estate and infrastructure) recorded a steeper fall compared to overall PE/VC investments at US$4.7 billion, 80% lower than the value recorded in 3Q21 (US$23.2 billion) and 67% lower than 2Q22 (US$14.1 billion). Pure play PE/VC investments accounted for 57% of all PE/VC investments in 3Q22, the lowest share of pure play PE/VC investments in 12 quarters.
All deal segments except private investment in public equity (PIPE) recorded a sharp decline in PE/VC investments. On a y-o-y basis, growth investments recorded the largest fall in PE/VC investments of 84% to record US$1.2 billion across 36 deals (US$7.2 billion across 47 deals in 3Q21 and US$7.8 billion across 56 deals in 2Q22), the lowest quarterly value of growth investments in more than 17 quarters. Start-up investments were the highest in 3Q22, with US$2.8 billion invested across 160 deals, nonetheless, they recorded a 73% decline y-o-y (US$10.2 billion across 298 deals in 3Q21 and US$5.6 billion across 252 deals in 2Q22). Buyouts, at US$2.6 billion across 14 deals, recorded a decline of 59% y-o-y (US$6.4 billion across 23 deals in 3Q21 and US$1.9 billion across eight deals in 2Q22).
PIPE investments recorded US$1.5 billion across 11 deals in 3Q22, a 19% increase y-o-y (US$1.3 billion across 23 deals in 3Q21 and US$951 million across 16 deals in 2Q22). Credit investments at US$235 million across 17 deals were the lowest, recording a 77% decline compared to 3Q21 (US$1 billion).
Most of the traditionally favorite sectors for PE/VC investments saw a sharp fall in investments in 3Q22. Infrastructure and healthcare were the only major sectors to record an increase in PE/VC investments. The infrastructure sector received maximum PE/VC investments in 3Q22, at US$2.6 billion across 12 deals, a 63% increase y-o-y (US$1.6 billion in 3Q21). The financial services sector received the second highest value of PE/VC investments at US$2.1 billion, a 44% decline y-o-y (US$3.7 billion in 3Q21). Real estate was the third largest sector, with PE/VC investments worth US$1.1 billion, a 16% decline y-o-y (US$1.3 billion in 3Q21). The next largest sector was healthcare, with US$835 million invested across 15 deals, a 19% increase y-o-y. The traditionally favorite sectors like technology (US$421 million in 3Q22) and e-commerce (US$341 million in 3Q22) recorded a decline in PE/VC investments of 88% and 96%, respectively.
Spotlight: Real estate sector PE/VC deal trends
In the previous decade, the real estate sector was the third largest sector behind financial services and infrastructure for PE/VC investments, with US$34 billion invested across 556 deals. In the recent past, since 2017, US$31.6 billion has been invested in the real estate sector with more than 50% being invested in commercial real estate.
Buyout of assets was the preferred mode of PE/VC investment, accounting for almost 50% (US$15.5 billion) of investments by value since 2017.
Blackstone was the largest investor in the period reviewed (2017-2022), deploying over US$5.3 billion, followed by Brookfield and GIC, each deploying over US$4 billion.
With easing liquidity and falling yields globally post the pandemic, the focus of PE/VC players shifted to growth-oriented e-commerce and tech-oriented businesses in 2020 and 2021. Notwithstanding that, real estate continued to attract significant PE/VC capital through the pandemic, with US$9.8 billion invested across 126 deals in 2020 and 2021.
In 2022, the real estate sector has recorded US$4.5 billion in investments to date and is expected to remain among the top sectors for the year.
Direct investments by pension funds and SWFs, the emergence of new investment vehicles like REITs, and growing demand for assets like data centers and logistics parks, in addition to traditional segments like commercial, residential, retail and hospitality assets will continue to drive the inflow of capital into the sector.
Exits in the real estate sector since 2017 have been very few, dominated by staggered exits by Blackstone from Embassy REITs aggregating to US$1.4 billion and accounting for 25% of exits by value between 2017-2022.
Exits
3Q22 recorded exits worth US$4.4 billion, 48% lower than the value recorded in 3Q21 (US$8.5 billion) and 20% lower than that in 2Q22 (US$5.4 billion). In terms of the number of exits, there was a 32% decline y-o-y, with 3Q22 recording 61 exits vs. 90 exits last year. The decline in exits was across all deal segments, with IPOs recording the sharpest fall, followed by secondary and strategic exits.
In 3Q22, open market exits were the highest, with US$2.3 billion recorded across 27 deals (US$2.6 billion across 28 deals in 3Q21), a 12% decline y-o-y. Secondary exits were the second highest, with US$1.2 billion recorded across nine deals, a 65% decline y-o-y (US$3.4 billion across 15 deals in 3Q21). Strategic exits recorded 23 deals worth US$739 million, a 32% decline y-o-y (US$1.1 billion across 31 deals in 3Q21). The deal values were unavailable for 15 out of 23 strategic exits. 3Q22 had just one PE-backed IPO with US$30 million in exit proceeds compared to 15 PE-backed IPOs in 3Q21 (US$1.4 billion).
The largest exits in 3Q22 include KKR’s sale of its 27.5% stake in Max Healthcare for US$1.1 billion and Blackstone’s sale of its 13.6% stake in Sona BLW for US$509 million.
From a sector perspective, the healthcare sector recorded the highest value of exits in 3Q22 (US$1.5 billion across eight deals) on the back of the large Max Healthcare exit by KKR, followed by the real estate sector with exits worth US$623 million across five deals.
Fundraise
3Q22 saw US$1.7 billion in fundraises compared to US$3.4 billion raised in 3Q21 and US$5.3 billion raised in 2Q22. 3Q22 recorded the lowest level of fundraising in the past four quarters. The largest fundraise in 3Q22 saw Lightspeed raised its fourth fund of US$500 million, its largest fund dedicated to India and Southeast Asia. The fund will focus on seed to series B investments with cheque sizes ranging from US$500,000 to US$15 million.
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