PE/VC investments up by 46% in first half of 2018, cross $15 bn in value

The first six months of 2018 recorded 22 buyouts aggregating $4.9 bn, surpassing values recorded in any of the previous years

Private equity investment worth $15.2 billion, across 351 deals, was recorded during the first half of 2018 on the back of 36 large deals of a value greater than $100 million, strong buyout activity, and investments in infrastructure and real estate asset classes. 

According to EY's deal tracker data, on a half-yearly basis, investments increased 46 per cent in value terms to $15.2 billion from $10.4 billion and 19 per cent in volume terms to 351 deals from 294.  

This was aided by strong growth in both the first and second quarter of 2018 compared to the corresponding quarters in 2017.  

Like last year, the strong growth continues to be driven by large deals. The first half of 2018 recorded 36 deals -- aggregating $11.5 billion -- of a value greater than $100 million, as against 20 deals -- aggregating $6.6 billion -- a year ago. With 23 deals, the second quarter of 2018 recorded the highest number of deals of a value greater than $100 million in a given quarter ever.  

The largest deals included GIC, KKR, OMERS, and others investing $1.7 billion in HDFC Ltd for a 3.9 per cent stake and Macquarie's $1.5-billion buyout of NHAI road assets.   

Another major driver, which has emerged in a big way, for growth has been the growth in the number of buyouts.  

In just its first six months, 2018 recorded 22 buyouts aggregating $4.9 billion, surpassing values recorded in any of the previous years -- 2017 recorded 25 buyouts worth $3.3 billion and 2016 recorded 29 buyouts worth $3.9 billion.  

As a result, buyouts now account for 32 per cent of all investments received in the first half of 2018, compared to 12 per cent in the whole of 2017. 

Growing interest by PEs in the infrastructure and real estate asset classes has also contributed to the rise in investments. 

"If we dissect the 46 per cent growth recorded in PE investments in the first half of 2018 further, we find that while pure play PE investments grew 29 per cent in the first half of 2018 as compared to the first half of 2017 ($11.3 billion in 1H18 vs $8.8 billion in 1H17), investments into infrastructure and real estate have more than doubled ($3.9 billion in 1H18 vs $1.6 billion in 1H17), accounting for 26 per cent of all PE investments in the first half of 2018, compared to 16 per cent in the first half of 2017," said EY. 

In addition to the Macquarie deal, other large buyouts during the period included Hindustan Infralog's (a JV between NIIF and DP world) buyout of Continental Warehousing for $400 million, Brookfield's $384-million buyout of Equinox Business Park, and Apax's $350-million buyout of Healthium Medtech Private Limited.

Vivek Soni, partner and national leader of private equity services, EY, said, "PE/VC investment activity in India has continued its strong performance in 2018 (despite global headwinds) with both investments and exits exceeding the numbers recorded in the first half of 2017. Buyouts, as a theme, has become even stronger in 2018 and is on course to become a prominent facet of PE investing in India. The entry of large pension funds looking to invest directly into yield-generating assets has provided a significant impetus to investments in the infrastructure and real estate asset classes. All these are in line with the trends we had forecasted in our PE/VC India Trendbook 2018 released earlier in the year. In our view, notwithstanding headwinds like high oil prices, depreciating currency, and potential of global trade wars, the first half of 2018's performance on PE/VC investments, exits, and fundraising has been strong and appears to be well on course to surpass the record highs of 2017."    

Exits

Exits worth $5.5 billion were recorded, across 99 deals, on the back of a few large strategic and secondary exits even as open market transactions remained subdued on account of volatility in the stock markets, showed EY's deal tracker data. 

Exits grew 17 per cent by value despite a 24 per cent decline in volume (99 deals vs 131 deals in 1H17), recording the best half-yearly performance since 2009, mainly driven by an increase in strategic and secondary exits. 

Exits via strategic sale worth $1.3 billion, across 23 deals, were recorded -- 3.6 times the value recorded in the first half of 2017. Exits via secondary sale (sale to other PE funds) worth $2.1 billion, across 24 deals, were recorded -- the highest-ever half-yearly value for secondary sales.  

Volatility in the markets continued to impact open market deal activity with the first half of 2018 recording just 32 deals worth $681 million, compared to 62 deals worth $1.9 billion in the first half of 2017. 

Nonetheless, the IPO market continues to remain quite active with eight PE-backed IPOs in the first half of 2018 (compared to seven in 1H17), which included the TATA Opportunities fund selling its 15 per cent stake in Varroc Engineering for $284 million -- one of the Top 5 exits during the period.

The largest exit during the period saw Actis selling its stake in Ostro Energy to ReNew Power for $769 million, followed by TPG selling its investment in Vishal Mega Mart to the Partners Group and Kedaara for close to $769 million, which was also the largest PE/VC exit in the retail and consumer products sector in India.