Private equity (PE) funds have loosened their purse strings and are on the prowl for opportunistic acquisitions across sectors in the current challenging environment triggered by COVID-19 pandemic. The lockdown period in India has seen these players edging out their strategic peers and sealing several control or majority stake deals with quality targets available at attractive valuations.
According to the IVCA-EY monthly roundup of private equity/ venture capital (PE/VC) investments, July 2020 recorded the highest value and number of buyout deals in the past 11 months. The total number of investments recorded in the month stood at $4.1 billion across 77 deals. However, this represents a 51 percent drop as compared to July 2019 which saw deals worth $8.4 billion, indicating that overall deal activity by PE funds and VC firms is still far below earlier peaks.
Six deals with a combined value of $1.7 billion were struck during the month. The two largest deals were Thoma Bravo's buyout of the US subsidiary of Majesco Limited for $594 million and KKR's buyout of JB Chemicals and Pharmaceuticals Limited for $496 million.
The report notes that if PE investments in Jio Platforms in May and June, which were an outlier, were excluded, July 2020 has been the best month so far in 2020, recording investments worth $3.7 billion. The month recorded 10 large deals (value greater than $100 million). International PE funds investing from their global/ Asian funds accounted for 97 percent of the >$100 million large deals in H12020.
M&A ACTIVITY : PRIVATE EQUITY FUNDS VS STRATEGIC PLAYERS
According to Vivek Soni, Partner and National Leader, Private Equity Services, EY, "Globally, PE and VC industry is sitting on record levels of dry powder and as such these International GPs (general partners) do not lack capital, but rather are under pressure to deploy it on deals that make sense. As the Indian market matures, PE investors have increasingly embraced complexity and scale in deal making, borrowing from their globally successful buyout strategies."
So why are strategic players lagging behind in deal activity when compared to the PE funds?
"Most strategic players are facing challenges to their core businesses, like dip in demand, disruption in production / supply chain and pressures of highly geared balance sheets. As the overall business environment is challenging, strategic players in many sectors are finding it difficult to muster resources for inorganic growth plans," Soni explains.
TECH, FINANCIAL SERVICES & PHARMA TOP THE PACK
From a sectoral perspective, technology was at the top in July with $963 million invested across ten deals, followed by financial services with $882 million invested across 15 deals and pharmaceuticals with $699 million invested across three deals. Startups recorded $272 million in investments across 40 deals. registering a sharp year-on-year decline of 80 percent.
THE ROAD AHEAD
Exit activity continued to remain subdued, with $134 million in exits, primarily comprising of open market exits, the report said. There were no PE-backed IPOs and secondary exits in July 2020. The largest exit seen in July was Warburg Pincus sell its 2.3 percent stake in AU Small Finance Bank Limited for $69 million.
"Investment vintages immediately post a crisis have historically proven to be the most rewarding and we are cautiously optimistic of an uptick in PE/VC investment activity over the next 2-3 months," the report added.
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