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PE/VC investments nosedive 75% to touch $3.3 billion in October, says IVCA-EY report

PE/VC investments nosedive 75% to touch $3.3 billion in October, says IVCA-EY report

PE/VC investments nosedive 75% to touch $3.3 billion in October, says IVCA-EY report
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By Jomy Jos Pullokaran  Nov 17, 2022 7:16:09 PM IST (Updated)

In terms of the number of deals, October 2022 recorded 75 deals, a 43 percent decline YoY (132 deals in October 2021) and at par with deals in September 2022.

Private equity and venture capital (PE/VC) investments for October 2022 touched $3.3 billion across 75 deals, 75 percent down from the same period last year ($13.1 billion), according to IVCA-EY’s monthly PE/VC round-up.

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In terms of the number of deals, October 2022 recorded 75 deals, a 43 percent decline YoY (132 deals in October 2021) and at par with deals in September 2022. Nonetheless, October 2022 recorded a 60 percent increase in investments on a sequential basis due to the large Bain Capital-CitiusTech deal.
October 2022 recorded six large deals (deals of value greater than $100 million) aggregating $2.2 billion, a sharp drop from the 24 large deals worth $11.3 billion recorded in October 2021.
The previous month had recorded just four large deals worth $906 million. The largest deal in October 2022 saw Bain Capital invest $960 million in CitiusTech for a 40 percent stake.
By deal type, growth investments were the highest in terms of value in October 2022 at $2 billion across 13 deals compared to $1.7 billion invested across 13 deals in October 2021 and $502 million invested across 16 deals in September 2022.
Start-up investments recorded $583 million across 46 deals in October 2022 compared to $4 billion recorded across 100 deals in October 2021 and $938 million invested across 43 deals in September 2022. Buyouts recorded $472 million across four deals in October 2022 compared to $6 billion across six deals in October 2021 and $81 million across three deals in September 2022.
From a sector point of view, healthcare was the top sector in October 2022, with $977 million in PE/VC investments across three deals ($245 million across six deals in October 2021). The second largest sector was financial services, with $216 million recorded across 13 deals ($2 billion across 30 deals in October 2021).
Traditionally favourite sectors like technology and e-commerce recorded $157 million ($5.6 billion in October 2021) and $128 million ($1 billion in October 2021), respectively, a significant decline in values compared to October 2021.
Globally, investors are diversifying their portfolios and seeking better returns by increasing capital allocations from traditional asset classes toward alternative asset classes. Private credit now accounts for about 12 percent of global private capital assets under management.
2022 has emerged as India's best year for PE/VC credit investments, recording $3.2 billion. Credit investments in 2022 to date are 5 percent higher than the previous high recorded in 2019.
Four sectors — financial services, real estate, infrastructure and e-commerce, have accounted for almost 80 percent of all credit investments between 2017 and 2022 (Jan-Oct).
Amid rising interest rates and valuations continuing to remain high, credit has emerged as a good opportunity for PE/VC investors to capture value, with many companies looking to raise bridge funding as an alternative to raising equity at less-than-optimal valuation levels.
IFC, Piramal, and KKR were among the largest credit investors from 2017 to 2022, investing over $1 billion each. In addition, Varde Partners, Apollo, Ares SSG and Bain Capital Credit are also emerging as major players in the Indian credit markets.
In terms of the number of deals, Trifecta, Blacksoil, IFC, Alteria and Innoven were the top players in the credit market. Apollo's $750 million investment in Mumbai Airport and Fidelity, Citadel Capital Management and Varde Partners' $660 million investment in OYO were among the largest credit deals from 2017 to 2022.
October 2022 recorded 15 exits worth $1.6 billion compared to $5.2 billion in October 2021 across 25 deals and $653 million recorded across 24 deals in September 2022. October 2021 recorded two large secondary exits worth $5 billion — the $3 billion Hexaware deal between Carlyle and Baring PE Asia and the $1.9 billion VFS Global deal between EQT and Blackstone.
Exits via secondary sale were the highest in October 2022, with four exits worth $1.4 billion, propped up by the large secondary deal which saw Bain Capital purchase a 40 percent stake in CitiusTech for $960 million from BPEA EQT which was also the largest exit in this month and the fourth largest this year.
October 2022 recorded total fundraises of $2.2 billion, compared to $70 million raised in October 2021. The largest fundraise was by Motilal Oswal, which raised its fourth fund of $549 million, all raised from domestic high net worth individuals (HNIs) and family offices.
Inflation woes, recession fears, the rising cost of capital and elevated levels of uncertainty driven by geopolitical tensions have weighed down the PE/VC activity in 2022, globally as well as locally. In India, the investment momentum, both in terms of size and number of deals, has slowed down considerably.
Not surprisingly, 2022 has, so far, been the best year for credit investments, recording $3.5 billion in PE/VC investments. Many investors are now focusing on value plays, a marked shift from last year when growth was the primary focus.
While many start-ups have already embarked on the path of conserving cash, growth rates are expected to be negatively impacted. We are projecting an uptick in consolidation / M&A within the start-up space in the coming months.
"On the PE side, valuations or the bid/ask spreads continue to be the main factor slowing down deal closure activity. Over the next 3-4 months, we expect this situation to improve as sellers and investors alike find equilibrium. The Indian economy continues to outperform relative to other emerging markets and while there may be short-term volatility, the PE/VC community continues to be sanguine about India's long-term growth prospects," IVCA-EY’s report said .
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