The first quarter of 2016 (calendar year) started on a strong note for Indian private equity players with investments worth $3.10 billion from 160 deals where the average deal size was $19.4 million, due to an improvement in the macro economic environment.
The information technology & IT-enabled services sector continued its dominance with an investment flow totaling $1.26 billion in 92 deals despite the shortfall of deals in the e commerce sector, said a PwC MoneyTree India report, a quarterly study of private equity investment activity based on data provided by Venture Intelligence.
“As compared to Q4 2015, when deal value was $3.78 billion in 184 deals, the volume dropped by 15%, while value fell by 18%. In comparison with the year-ago period (Q1 ’15), there was a considerable decline of 24% in terms of number of deals, but the drop in value was a moderate 2%. Q1 ’15 saw 211 deals worth $3.16 billion,” said the report.
In terms of value, the flow in IT And ITes was 15% higher as compared to the previous quarter, with an 18% surge as compared to the year-ago period. The banking, financial services & insurance sector (BFSI) came a distant second, attracting $430 million, a more-than 50% decline, compared to the previous quarter and the year-ago period. With a single deal, the travel & tourism sector added $321 million to its kitty.
“The Indian IT-ITeS industry is in an optimistic mood, with the government planning a number of major technology-centric initiatives, including some wide-ranging infrastructure investments. The ‘Digital India’ program and ongoing efforts on ‘Smart Cities’ are driving spending on software and IT services. Meanwhile, IT budgets in sectors such as banking and financial services, retail, telecom, logistics, continue to remain robust. We believe the expected growth in the sector will provide more opportunities for investors,” said Sandeep Ladda, leader (Technology) at PwC India.
According to Sanjeev Krishan, leader for Private Equity at PwC India, “Indian macros continue to gain health and this is likely to spur M&A and funding activities over the next few months. However we expect this to be sectoral. Financial services and healthcare continue to see significant deal momentum, as have some of the services segments. Capital goods and manufacturing sectors are seeing greater activity though most of this is due to extraction of good operating assets from the not so well performing conglomerates. There has been a definite slowdown in the e-commerce / digital and consumer internet deals and the next few months are likely to see some consolidation in the sector.”
As per the report, the PE appetite continued to be strong with late-stage investments of $1.32 billion invested into mature companies. Growth-stage investments also played a significant role, attracting $ 918 million in the January to March period of 2016.
The first quarter was also the best-ever first quarter in terms of exits. It saw exits worth $2.59 billion in 35 deals, which is 50% higher than the previous quarter, which saw exits worth $1.67 billion in 59 deals. This is a 29% surge as compared to Q1 ’15 ($ 1.94 billion in 68 deals).
With over 50% of the total deal value, the manufacturing sector emerged as the top sector in exits, with $1.27 billion in four deals.