- July 2023 recorded US$3.9 billion in PE/VC investments
- Buyouts in 2023 recorded US$2.5 billion, a 55% y-o-y increase
- US$2.3 billion invested in InvITs and REITs in 2023 till date
Mumbai, 18 August 2023: According to the IVCA-EY monthly PE/VC roundup, July 2023 recorded investments worth US$3.9 billion across 59 deals, including eight large deals worth US$3.1 billion. Exits were recorded at US$2.4 billion across 16 deals in July 2023, with strategic exits accounting for 63% of all exits by value.
Vivek Soni, Partner and National Leader, Private Equity Services, EY said, “July 2023 recorded US$3.9 billion in PE/VC investments, 5% lower than the investments in July 2022 but 17% higher than June 2023. The number of deals in July 2023 was lower by 26% y-o-y.
By deal type, buyouts were the highest in terms of value in July 2023 at US$2.5 billion across five deals, compared to US$1.6 billion invested across five deals in July 2022, a 55% increase y-o-y in value terms and the highest in 21 months. Startup investments recorded US$553 million across 37 deals in July 2023, a 33% decline y-o-y in terms of value.
From a sector point of view, industrial products was the top sector in July 2023, on the back of a large investment by GIC in Gemstar Infra, recording US$1.6 billion in PE/VC investments across five deals. Healthcare was the second-largest sector, with US$901 million recorded across seven deals.
PE/VC exits were at an 11-month high of US$2.4 billion on the back of the US$1.4 billion exit from Flipkart by Tiger Global and Accel.
PE/VC investments in InvITs and REITs in 2023 till date stood at US$2.3 billion. This asset class is emerging as a favorable investment option for many PE funds, especially the pension funds and SWFs. The spotlight section of this report covers how PE has played a vital role in shaping the growth of this asset class.
While investors continue to look at the FED for indications of easing interest rates and liquidity, deal momentum has picked up in some sectors like industrials, healthcare, and financial services on the back of buoyancy in the Indian capital markets. There is also a return to large deals to some extent. However, barring a few marquee deals among large tech names, sentiment in India for tech sector investments remains tepid, and fundraising by Indian startups has been sluggish. Exits have picked up on the back of a strong revival in the capital markets, where PE/VC funds have been able to offload large stakes in recently listed holdings. With less than a year remaining until the general elections, the likelihood of any large-scale reforms is low. However, with India emerging as one of the fastest growing economies in the world and its growing importance in global supply chains, the medium- to long-term outlook remains positive. India-focused funds are flush with dry powder, and international funds are increasingly looking to expand their India footprint. We expect PE/VC deal momentum to pick up in 2H2023."
Investments
PE/VC investments in July 2023 recorded US$3.9 billion, 5% lower than PE/VC investments in July 2022 (US$4.1 billion) and 17% higher than June 2023. In terms of the number of deals, July 2023 recorded a 26% y-o-y decline and a 20% sequential decline.
July 2023 recorded eight large deals (deals of value greater than US$100 million) aggregating US$3.1 billion, a 4% decline y-o-y in terms of value. The largest deal in July 2023 saw GIC invest US$1.5 billion in Gemstar Infra, a JV with Genus Power to produce smart meters.
By deal type, buyouts were the highest in terms of value in July 2023 at US$2.5 billion across five deals, compared to US$1.6 billion invested across five deals in July 2022, a 55% increase y-o-y in value terms and the highest in 21 months. Startup investments recorded US$553 million across 37 deals in July 2023 compared to US$821 million recorded across 55 deals in July 2022, a 33% decline y-o-y in terms of value. Growth investments recorded US$254 million across seven deals, compared to US$509 million recorded across 12 deals in July 2022. PIPE investments recorded seven deals worth US$485 million, compared to US$1.1 billion across two deals in July 2022.
From a sector point of view, industrial products was the top sector in July 2023, on the back of the large investment by GIC in Gemstar Infra, recording US$1.6 billion in PE/VC investments across five deals (two deals worth US$28 million in July 2022). Healthcare was the second largest sector, with US$901 million recorded across seven deals (seven deals worth US$319 million in July 2022).
Spotlight: Private Equity pioneering the growth of new asset class-InvITs and REITs
In India, REITs and InvITs have together raised more than US$12.7 billion in capital, and another US$3 billion of InvIT and REIT transactions have already been announced. The Indian economy is relying heavily on the development of infrastructure to drive growth. Sectors such as roads, highways, and ports, along with the power and real estate sectors, are witnessing growing demand for capital. As a result, Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) have gained importance in furthering the economy’s infrastructure needs. Private Equity investors have played a crucial role in developing this asset class, not just by incubating many INVITs and REITs but also by investing in many public and private placements. Below are a few reasons why the asset class has the potential to grow significantly in India:
- The opportunity is huge: The Government’s National Infrastructure Pipeline estimates a funding requirement of over US$1.4 trillion by 2025. The real estate sector in India is expected to reach a market size of US$1 trillion by 2030. In order to allow for capital recycling and further investments, InvITs and REITs can play a key role in the monetization of existing projects in these sectors. Moreover, with the ongoing National Monetization Pipeline (NMP) of around US$73 billion, there is an increasing play for InvITs and REITs. Globally, REITs have been one of the predominant means of fundraising for yield generating assets. Started in 1960 in the USA, the total market cap of REITs stands at US$1.3 trillion as of 2022 (Source: Nareit). In India, this asset class is still in its early stages.
- Beneficial exit option with liquidity: The self-amortising nature of units provides convenient exit options to investors, thereby overcoming challenges that investors typically face with large investments in real assets like infrastructure and real estate that are less liquid.
- Favourable asset class for certain class of investors: REITs and InvITs have attracted investments from pension funds, sovereign wealth funds, and insurance companies, apart from private equity funds. Furthermore, pension funds and sovereign wealth funds have long term investment horizons, which are favourable for investments in infrastructure projects, with long project lives. OMERS, CPPIB, Allianz, GIC, Brookfield, Blackstone, and KKR have been among the prominent investors in InvITs and REITs.
- Increasing diversity to provide better options: The InvITs in India have predominantly been in the roads and highways sector, and the REITs have been in the commercial real estate sector. However, building on the success of earlier InvITs and REITs, many new sponsors are looking to come out with InvIT and REIT offerings where the underlying assets include renewable energy, retail assets, schools, etc. Cerestra Advisors has registered SchoolHouse InvIT, with an underlying portfolio of schools, Investcorp and NDR Group have registered NDR InvIT Trust, with an underlying portfolio of warehouses and logistic parks. This will help investors have further diversification in their InvITs and REITs portfolios.
- Enabling measures by the government: The government, including SEBI and other regulators, has played a proactive role in popularising and promoting these investment trusts. Steps by SEBI on the reduction of the minimum subscription size and trading lot for InvITs/ REITs, are expected to bolster the liquidity of these instruments further.
Overall, in the past five years, while there has been increasing retail participation, institutional investors, both foreign and domestic, have remained bullish on India’s growth story as well as a the option and success of InvITs and REITs. As most InvITs and REITs are backed by high-quality sponsors such as KKR, Brookfield, Blackstone, etc., the success of this asset class will act as a tailwind for India’s funding requirements for its medium-term infrastructure vision.
Exits
July 2023 recorded 16 exits worth US$2.4 billion, compared to US$322 million recorded in July 2022 across nine deals.
Strategic exits were the highest in July 2023, at US$1.5 billion across four deals, accounting for 63% of all exits by value.
The largest exit in July 2023 saw Tiger Global and Accel sell their 4% stake in Flipkart for US$1.5 billion to Walmart.
Fundraise
July 2023 recorded total fundraises of US$234 million compared to US$866 million raised in June 2022. US$122 million raised by Welspun One Logistics Parks was the largest.
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