Deals Down 87% Y-O-Y And 56% Sequentially
By Chandra Ranganathan & Shruti Sabharwal (Chennai / Bangalore)
WEAK market sentiment continues to spook private equity funds. Private equity players invested dramatically lower sums in India in the last three months, as risk aversion continued despite a steep decline in valuation. Private equity deals have dropped a staggering 87% year-on-year and 56% sequentially, according to data from Venture Intelligence, a research service focused on private equity and M&A transactions in the country. Both the deal pipeline and the size of deals have shrunk.
PE firms invested about $526 million across 36 deals during the quarter ended March 2009, compared with $3.9 billion across 133 deals during the same period last year. Sequentially, the previous quarter saw $1.2 billion struck across 63 deals.
Venture Intelligence founder and CEO Arun Natarajan attributed the drop to risk aversion, particularly among limited partners (LPs). LPs are institutions or individuals that give capital to PE funds. They could be pension funds, insurance companies or asset management firms. Among the largest investments during the first quarter of 2009 was the $50 million raised by media and entertainment firm Nimbus Communications from its existing investors and the $47.5 million raised by start-up broadband ISP services provider Tikona Digital Networks.
In terms of industry, the IT and ITES industry topped the chart, registering 13 deals worth $95 million during Q1 ’09, followed by manufacturing (four deals worth $36 million) and BFSI (three deals worth $53 million).
The going has also been tough for early-stage investments. The venture capital (VC) segment also saw a sharp drop with VC firms investing $44 million over just nine deals during the period. “All stages are affected because the behavioural patterns of all risk investors, i.e., PE and VCs, are exactly the same, whether at the lower or the higher end. Since the market is down, the growth trajectory of companies is unpredictable. Venture and PE investors tend to wait longer to see if the projected growth will happen or not,” said Mr Sudhir Sethi, founder, managing director and chairman, IDG Ventures India.
The VC amount invested during the period was lower compared to the immediate previous quarter (which saw $91 million across 18 deals) and the corresponding quarter in 2008 ($226 million across 33 deals). The largest VC investment in Q1 ’09 was the $12 million raised by US and India-based chip design firm Si2 Microsystems from Ventureast and Jafco Asia. IT and ITES companies accounted for five out of the nine investments during Q1 ’09.
Private equity has dried up globally as an asset class. It is not surprising that India is also feeling the heat because most funds operating in India raise their money abroad. So, industry watchers say the downtrend will continue in the coming quarters.