The year 2019 saw deals valued at $45 billion, the highest in the last decade, by PE and VC firms. The reason for the spike is the increasing number of large deals (greater than $100 million), an increase in their average deal size and a surge in VC investments. The findings are part of the Bain & Company and Indian Private Equity & Venture Capital Association (IVCA)'s India Private Equity Report 2020.
This made India the second largest deal market in Asia-Pacific in 2019, finds Bain report, with its share of the APAC deal market increased to nearly 25 per cent in 2019. Large investments in 2019 included stakes in Reliance Jio Infratel, Pipeline Infrastructure, Axis Bank, GMR Airports, GVK Airport Holdings and Paytm.
The four sectors, which contributed more than 90 per cent to the growth in the investment value, included real estate and infrastructure, telecom, IT and ITES, and BFSI. The top 15 deals in India constituted more than 35 per cent of total investment value in 2019. Of these, five were in real estate; three in IT and ITES; and the rest across banking, financial services and insurance (BFSI), telecommunications, energy and consumer technology.
Almost half of these investments were in vertical e-tailers/marketplaces and fintech companies. This year saw investment activity in companies such as Lenskart, Zilingo, Grofers and FirstCry. Growth in real estate and infrastructure was driven by a few large infrastructure deals, as well as the use of real estate investment trusts (REITs) as an investment vehicle. Two large deals-Reliance Jio Infratel and Bharti Airtel - helped boost the telecom sector.
Arpan Sheth, partner, Bain & Company said, "From an investment perspective, we will likely see a short-term dip in investment activity with COVID-19, as already evidenced globally. However, this imminent price correction across the board will present an investment opportunity." He adds that investors will need to triage their portfolio and take actions to adapt to the changes in the economy which includes taking immediate actions to ensure business continuity and plan for value creation to retool their businesses for the future.
COVID-19 will have a lot more impact than other major epidemics due to increased global interconnectedness and the virus' high spread rate. India is beginning to face the impact of COVID-19, with major import and export destinations impacted as well as the stock market which has taken a hit in recent months.
But it has been seen that the deals invested during or after a downturn tend to do well. "The market disruption caused by COVID-19 could lead to growth in select pockets such as e-commerce, enterprise technology/SaaS, healthcare, on-demand services," said Sheth. The report also finds that there will not be dearth of capital for good deals. India-focussed dry powder will remain healthy, but a potential reduction in investments could occur in H1 2020, accompanied by a price correction across the board. In 2019, it was $8.3 billion, albeit lower than the levels seen in the previous two years, which were upwards of $11 billion.
The report also found that exit value in 2019 decreased. It was nearly $13 billion, compared to $17 billion in 2018 (excluding Flipkart's exit), but was still the third-highest for the last decade. This dip over last year was driven by a decrease in the number of exits from 265 to 200. "A majority of investors believe that top-line growth and capital/cost efficiency will be the largest value creators in the future. We see high-seller pricing expectations, macroeconomic softness and the COVID-19 pandemic as key concerns which will dampen investments this year," said Sriwatsan Krishnan, partner, Bain & Company.