
Positive signs from India
The last few years haven't been kind to Indian private equity. After a period of strong fundraising and bumper investment – a large portion of it into publicly-listed entities – the industry has largely been unable to deliver on the promise. Non-performers are already being weeded out as LPs, operating on a “I won’t give you money if you can’t show me money” basis, refuse to back new funds.
The question that remains with international investors is when will the consolidation be over?
A colleague's feedback from a recent research trip to India is that it's business as usual. While there hasn't really been much change in sentiment from a few months ago, many GPs are see light at the end of the tunnel. The economy maybe slow, but they are being proactive and finding new ways of creating investment opportunities. These include the use of debt instruments such as structured lending and mezzanine finance.
Although the private debt space is interesting, there has been no shortage of "traditional" deals announced recently. The more established local firms like ChrysCapital Partners, IL&FS Investment Managers and IDFC Private Equity have been active; a few more international names - Macquarie, Fidelity, Oaktree Capital Management and Goldman Sachs - are also making headlines.
PIPE deals are less prevalent than before and the industry focus appears to be quite diversified, notwithstanding the spate of real estate transactions announced recently.
Does this mean the global private equity industry is embracing India once again? It's too soon to say, but the numbers look promising. So far this year, AVCJ Research has records of 151 deals with a combined value of just over $4.4 billion. That's nearly $1 billion up on the same point last year. Investors appear to be taking bigger bets with average ticket size around $30 million, compared to $17 million in 2012 and $23 million in 2011.
There are numerous possible explanations for the improvement. The Securities and Exchange Board of India's moves to alter the regulatory framework to favor dealmakers is likely having an impact, but I would highlight one other factor: exit options for portfolio companies seem to be increasing.
AVCJ Research tracked 48 exits totaling around $2.5 billion for the year so far. The $5 billion returned in 2012 is still some way off - and that figure was distorted by a couple of bumper deals - but the first six months of this year alone are nearly on par with the full-year 2011 stats, which saw $2.9 billion generated from 59 exits.
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