PE/VC investments decline 8% to $41.4 bn during January-November 2020

PE investments in Reliance Group entities accounted for 42%

PE/VC investments during January to November declined by 8 per cent to $41.4 billion from $44.9 billion in 2019. Headline PE/VC investment performance in 2020 was significantly propped up by PE investments of $17.3 billion in Reliance Group entities which accounted for 42 per cent of all PE/VC investments in 2020.

The IVCA-EY report said, "If we were to exclude these one-off PE investments in the Reliance Group entities, PE/VC investments in 2020 would be significantly lower at $24.1 billion, a 46 per cent decline compared to the same period last year. In terms of volume, number of deals in 2020 for the January to November period declined by 11 pre cent compared to same period last year (852 deals in 2020 vs. 953 deals in 2019)."

Vivek Soni, partner and national leader Private Equity Services, EY, said that due to large investments in the group entities of Reliance Group (Jio Platforms and Reliance Retail) during 22 and H2 2020, headline numbers for PE/VC investments in 2020 till date have been far better than anticipated, an 8 per cent decline as compared to the same period last year. However, if we were to exclude the Reliance Group entity deals, PE/VC investments in 2020 till date are at $24.1 billion, 46 per cent lower than the same period last year.

Sectors focused on essential goods and services like pharma, telecom, digital technology, edtech, etc. have received a major chunk of PE/VC investments while some of last year’s favourites like infrastructure, real estate and financial services have witnessed a significant decline in investment flow. All deal segments recorded a decline in PE/VC investments with buyouts being the most affected. Fundraising activity also saw a 31 per cent decline between Jan-Nov 2020 as LPs remained focused on managing their larger public market portfolios and restricted their new commitments to tried and tested funds only.

One of the biggest reasons for the relative decline in PE/VC investments in 2020 (year-to-date) is the underperformance of the infrastructure and real estate sectors which attracted the highest PE/VC investment in 2019, at $18.8 billion in the period January-November ($20 billion for the full year), accounting for 42 per cent of all PE/VC investments in 2019 (January-November).

In 2020, these sectors have received only $7.8 billion in investments till date, accounting for just 19 per cent of total PE/VC investments. As a result, there has been a sharp decline in buyout activity as well, which has recorded a decline of 46 per cent in terms of value and 40 per cent in terms of volume. Infrastructure and real estate sectors accounted for 70 per cent of all buyouts by value in 2019 in the January-November period.

In terms of deal type, all deal types, except growth deals, have recorded a significant drop in investments. Buyouts were the most affected by the slowdown in PE/VC deal activity. Between January to November this year, 35 buyouts worth $8.7 billion were recorded compared to 58 buyouts worth $16 billion recorded during the same period in 2019.

For the period under consideration, value of buyouts in 2020 are the lowest in the last three years. Growth deals were the highest with $22.7 billion invested across 163 deals ($13.7 billion across 211 deals during Jan-Nov 2019). The significant increase in value of growth deals is primarily on account of the $17.3 billion invested in entities of the Reliance Group; else, even growth deals would have declined by 53 per cent.

Start-up investments too, declined by 40 per cent to $4.5 billion across 530 deals ($7.5 billion across 560 deals during Jan-Nov 2019). Private investment in public equity (PIPE) deals declined by 41 per cent to $2.9 billion across 53 deals ($4.9 billion across 55 deals during Jan-Nov 2019). Credit investments declined by 10 per cent to $2.5 billion across 71 deals ($2.8 billion across 69 deals during Jan-Nov 2019).

If not for mega investments in entities of the Reliance Group, YTD 2020 would have recorded a significant decline in both value and number of large deals (value greater than US$100 million). Between Jan-Nov, 2020, 72 large deals aggregating to $32.5 billion were recorded compared to 104 large deals aggregating to $33.4 billion during the same period in 2019.

Nineteen out of the 72 large deals in 2020 were on account of investments in Reliance Group entities (worth $16.3 billion). In addition to the RIL Group PE investments, the other large deals in 2020 (year-to-date) include Brookfield’s acquisition of 12.5 million square feet of commercial space from RMZ Corp including its shared working space COWrks and Blackstone’s purchase of the rental income assets of Prestige Group for $1.6 billion, on the real estate side. On the PE side, the largest deals were Thoma Bravo’s $729 million buyout of Majesco Limited’s US business, Goldman Sachs and Varde Partners’ buyout of RattanIndia Power Limited’s debt for US$566 million and Baring PE Asia’s buyback of shares of Hexaware Limited worth US$565 million in its move to delist the company.

From a sector point of view, in 2020 (Jan-Nov), almost all sectors recorded a sharp decline in value invested. Telecom, retail, education and pharma were the only sectors to record increase in value invested. Moreover, these sectors also recorded their highest ever value of investments in 2020. Telecom was the top sector with US$10 billion invested across 13 deals (10 times increase y-o-y) mainly attributable to investments in Jio Platforms, followed by retail and consumer sector with $6.5 billion invested across 42 deals (6.7 times increase y-o-y), on the back of large investments in Reliance Retail, financial services with $4.6 billion invested across 135 deals (47 per cent decline y-o-y), technology with $2.4 billion invested across 131 deals (37 per cent decline y-o-y), pharmaceuticals with $2.8 billion invested across 33 deals (2.3 times increase y-o-y), technology with $2.4 billion invested across 131 deals (37 per cent decline y-o-y), and education with $2.1 billion invested across 68 deals (2.7 times increase y-o-y). Infrast ructure sector that received the highest value of investments in 2019 received $3.4 billion across 26 deals in Jan-Nov 2020 (75 per cent decline y-o-y).

Exits have reached a six year low, declining by 53 per cent on a y-o-y basis to US$4.9 billion in the Jan-Nov 2020 period. While the public markets recovery has exceeded pre-COVID levels and are at all-time highs, the catch-up in mid-caps and small-caps has only begun in the last 2 months or so.  Consequently, the IPO market has picked up momentum and we expect PE/VC exit activity to pick-up significantly in 2021 as secondary and strategic investments revive on the back of sustained demand revival and IPO’s of PE/VC backed companies.

Going forward, PE/VC investment activity in India can pick-up pace faster than expected if positive news emerges from the initial roll out of the various successful vaccines announced globally. Overall, India’s economic indicators point to a faster than expected recovery# and we remain optimistic on sustained PE/VC investment and exit activity, he said.

Fundraisings

The period Jan-Nov, 2020 saw $5.9 billion in fundraisings, 31 per cent lower than same period last year ($8.5 billion in 2019). There were only 12 fundraises of over $100 million in 2020 (year-to-date) compared to 25 in the same period last year.

The largest fund raise in 2020 saw Sequoia raise a $1.4 billion venture fund for investments in India and Southeast Asia followed by Edelweiss Asset Management’s $900 million fundraise for structured debt investments.