PE/VC investments in 2020 were at par with the previous year in terms of value at $47.6 billion as compared to $47.3 billion in 2019. Reliance Group entities topped the chart in 2020 with about $17.3 billion, which accounts for 36 per cent of the PE/VC investments in 2020.
According to EY-IVCA report, 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 $30.2 billion, a 36 per cent decline compared to last year. In terms of volume, number of deals in 2020 declined by 11% compared to last year (921 deals in 2020 vs. 1030 deals in 2019).
One of the biggest reasons for the relative decline in PE/VC investments in 2020 is the underperformance of the infrastructure and real estate sectors which attracted the highest PE/VC investment in 2019, at $20 billion, accounting for 42 per cent of all PE/VC investments in 2019. In 2020, these sectors have received only $10.2 billion in investments, accounting for just 21 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 28 per cent in terms of value and 30 per cent in terms of volume. Infrastructure and real estate sectors accounted for 71 per cent of all buyouts by value in 2019 which has dropped to 61 per cent in 2020.
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. The year 2020 recorded 43 buyouts worth $11.8 billion compared to 61 buyouts worth $16.5 billion in 2019. A late pick-up in the last month of 2020 helped shore-up the buyouts tally with 9 buyouts worth $4.7 billion recorded in December (40 per cent of all buyouts by value in 2020).
In percentage terms, start-up investments recorded the steepest decline of 40 per cent to $4.8 billion across 558 deals ($7.9 billion across 606 deals in 2019). Private investment in public equity (PIPE) deals too declined by 39 per cent to $3.1 billion across 61 deals ($5 billion across 59 deals in 2019). Credit investments declined by 17 per cent to $2.6 billion across 73 deals ($3.1 billion across 76 deals in 2019).
Growth deals were the highest with $25.4 billion invested across 186 deals ($14.8 billion across 228 deals in 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 39 per cent.
If not for mega investments in entities of the Reliance Group, 2020 would have recorded a significant decline in both value and number of large deals (value greater than $100 million). The last year recorded 85 large deals aggregating to $37.7 billion compared to 109 large deals aggregating to $34.6 billion in 2019.
EY-IVCA report stated, 19 out of the 85 large deals in 2020 were on account of investments in Reliance Group entities (worth $17.3 billion). In addition to the RIL Group PE investments, the other large deals in 2020 include Brookfield’s acquisition of 12.5 million square feet of commercial space from RMZ Corp including its shared working space COWrks for $2 billion and Blackstone’s purchase of the rental income assets of Prestige Group for $1.5 billion, on the real estate side. On the PE side, the largest deals were Blackstone’s acquisition of Piramal Glass Private Limited for $1 billion, Thoma Bravo’s $729 million buyout of Majesco Limited’s US business, $660 million investment in food delivery platform Zomato by Tiger Global, Fidelity and a group of other investors and Baring PE Asia’s buyback of shares of Hexaware Limited worth $565 million in its move to delist the company.
From a sector point of view, in 2020 almost all sectors recorded sharp decline in value invested. Telecom, retail, education and pharma were the only sectors to record significant increase in value invested. Moreover, these sectors also recorded their highest ever value of investments in 2020. Telecom was the top sector with $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 $6.6 billion invested across 46 deals (6.7 times increase y-o-y), on the back of large investments in Reliance Retail, real estate with $5.2 billion invested across 31 deals (16 per cent decline y-o-y), financial services with $4.8 billion invested across 144 deals (47 per cent decline y-o-y), technology with $3.3 billion invested across 140 deals (16% decline y-o-y), pharmaceuticals with $3 billion invested across 36 deals (2.4 times increase y-o-y), e-commerce with $2.5 billion invested across 112 deals (47 per cent decline y-o-y), and education with $2.1 billion invested across 71 deals (2.7 times increase y-o-y). Infrastructure sector that received the highest value of investments in 2019 received $5 billion across 30 deals in 2020 (64 per cent decline y-o-y).
Vivek Soni, partner and national leader – Private Equity Services, EY said, “PE/VC investment activity capped off a tumultuous 2020 on a high, closing out with over US$7.1 billion of investments in December, making it the second highest monthly total in 2020. While the Jio Platforms’ and Reliance Retail’s PE Fund raising juggernaut rolled on in May / June and Sept-Nov respectively, seemingly unaffected by the pandemic, Indian PE/VC investment activity ground to monthly average of less than US$1.2 billion during the period March-June, the lowest ever in the past six years. Spurred by the extraordinary QE unleashed by the US and European Central banks, the Jio Platforms deals and the phased easing of lockdowns in India during June / July, investor sentiment turned positive towards sectors like technology, pharmaceuticals, EdTech and enterprise SaaS which demonstrated resilience to the pandemic. July saw almost US$4.1 billion of PE/VC investments (non-RIL entities) and as India continued to fare better than expected on both health as well as economic parameters#, monthly PE/VC investment activity strengthened month on month.”
As India’s economic recovery gathers steam and becomes more broad based, with most sectors (other than travel, HoReCa, etc.) returning to / trending towards their pre-Covid levels, the outlook for PE/VC investments in 2021 is very bright, he said.
At a macro level, the mega liquidity unleashed by the US and European Central banks, low yields and the declining dollar is forcing large LP’s to increase their allocations towards higher yield generating and growing emerging markets – of which India will be a beneficiary. With the new US administration in place, markets are hoping for less trade war rhetoric and reduction of hostilities. Brexit too, is no longer an unknown and with successful vaccine announcements, most of the global uncertainties that plagued markets in 2020 appear to be on the decline.
The successful fund raising by the RIL Group entities from Global PE and strategic investors during the peak of the pandemic has added a new dimension to India’s attractiveness as a destination for global capital. Several large marquee global investors have made their maiden investments in India via the RIL group deals and one can expect most of them to follow through with more investments as the Indian recovery picks up steam. As global corporations look to mitigate risks by diversifying their supply chains and as differential access to resources drives consolidation in most Indian sectors, new and larger opportunities are emerging for PE investors, said Soni.
The tectonic shifts in India’s digitisation unleashed by the pandemic coupled with the sentiment boost driven by mega successful IPO’s / listings of PE backed tech companies in the US are expected to keep Indian VC investors busy as new, hyper scalable business models emerge and home grown technology companies look to list in the public markets.
Q42020 saw average monthly PE/VC investments of $4.2 billion (excl. RIL Group deals) and investment teams of most funds are now firing on all cylinders. Nov and Dec saw monthly exits move up to US$1 billion and with the recovery in mid-cap and small-cap indices, we expect a busy IPO calendar by PE/VC backed companies. Open market exits remain strong and secondary exits are expected to recover sharply in 2021.
“With the better than expected Indian economic revival, launch of vaccination drives and this alignment of global macro factors, we expect 2021 to be significantly better than 2019 for both Indian PEVC investments as well as exits. Caveat: Should the pandemic worsen globally; it will dampen both investor appetite and economic activity,” he said.