Private equity investors pumped a record $62 billion into Indian companies last year, according to Bain & Company’s India Private Equity Report 2021.
Nearly 40 percent of this inflow came through $26.5 billion worth of investments made in Reliance Industries’ subsidiaries Jio Platforms and Reliance Retail.
Excluding the Reliance transactions, the total deal value fell by 20 percent in 2020 (YoY). That’s because large volume deals of more than $100 million slumped by 25 percent.
As the pandemic put a stop to all economic activity in the first half of the year, private equity investments too tapered off. However, the second half of the year saw a surge in investments as investor confidence returned. Thus, the number of deals went up by 5 percent from 1,053 in 2019 to 1,106 in 2020.
Last year, healthcare saw the highest growth of 60 percent (YoY). However, consumer tech and IT/ITES were the clear favourites, becoming the largest sectors in terms of investment value, according to the report.
The virus outbreak moved the world from offline to online and created a large base of digital-friendly and health-conscious users. This led to a deal surge in business for edtech, fintech, verticalized e-commerce and foodtech with big-ticket investments in Byju’s, Zomato, and FirstCry and many more.
On the B2B front, IT and ITES were popular investment avenues due to accelerated growth in digital channels. The increasing interest in Software as a Service (SaaS) and greater corporate focus on digital readiness led to multiple $100 million deals in the segment. Zenoti and Postman in SaaS. Virtusa and Majesco were some of the top investor picks in IT services.
So, what's the rationale behind these large investments in tech-driven companies? “Technology is becoming the backbone of most industries. Investors are eyeing to see where the next value creation is going to come. It is inevitable that some of these companies will become standalone behemoths while others get acquired,” said Karthik Reddy, Co-Founder & Managing Partner, Blume Ventures.
During the pandemic, many private equity investors sat tight with their investments given the turbulence in the market. For those investors who sold up and exited their portfolio companies, the exit value declined by 30 percent (YoY) in 2020. However, there was a rise in exit multiples driven by high-return generating consumer tech and BFSI companies.
“We expect continued exit momentum over the next one to two years as portfolios of leading PE investors mature and multiple IPOs planned for the next 12-18 months are launched,” said Arpan Sheth, Senior Partner, Bain & Company India.
Paytm, Zomato, Nykaa, Delhivery, PolicyBazaar, Pine Labs and Barbeque Nation are some of the startups that are expected to hit the stock exchanges this year, offering an exit opportunity for their investors. “While some may take the SPAC or NYSE route with greater global acceptance others may list domestically. However, we will see many of these tech-led startups forming a major chunk of the Nifty in the coming decades,” said Ankit Agarwal, Partner, Alteria Capital.
Another trend that’s quickly gaining attention in the Indian startup ecosystem is consolidation. If BYJU is acquiring competition, Tata Digital is embarking on a shopping spree, seeking to acquire new-age startups rather than spend time in building its own digital assets. “'Conglomerates like Tatas investing in digital opportunities in India is a huge validation of what has been created in the startup tech space over the last 10 years,” said Agarwal.
The private equity investment momentum is set to continue well in 2021 with the money chasing companies in healthtech, consumer tech, fintech and edtech spaces.
(Edited by : Aditi Gautam)
First Published: IST