PE/VC investments worth $3.5 bn in Jan 2018; continued momentum from last year: EY

January 2018 recorded investments worth $3.5 billion across 51 deals, continuing the tempo from the last few months. Further to the trend established last year, large value deals (over US$100 million) continued to dominate the activity with the financial services sector leading the way. The first month of 2018 also recorded 26 exits worth $970 million, reveals EY's private equity monthly deal tracker.

''After a relatively quiet December 2017, PE activity has picked up again this month, with both investments and exits growing by more than a third compared to the previous month, Says Vivek Soni, Partner and Leader for Private Equity Advisory, EY.

"The trend of larger and more complex deals continues with five investments greater than $100 million being announced in the first month of 2018 itself compared to 56 such deals across all of 2017.  In terms of sectors, financial services, real estate and healthcare continued to attract most of the investments dollars. This month PIPE (private investment in public equity) deals recorded a growth of over 100 per cent compared to the previous month. In 2018, we expect to see the value of PIPE deals growing significantly, as large pension funds and sovereign wealth funds increase their India focus and as deal sizes continue to become larger.'' 

Investments
January 2018 recorded almost double the value of investments witnessed last year ($3.5 billion in January 2018 vs $1.2 billion in January 2017). Compared to December 2017, investments grew by 32 per cent in value terms.

This increase was primarily on account of a large investment worth $1.7 billion by a group of investors including GIC, KKR, CPPIB, Ontario Municipal Employees Retirement System, Carmignac Group and Premji Invest into HDFC Ltd, India's premier mortgage lender. In terms of volume, investments grew by 19 per cent compared to January 2017 and were almost at part compared to the previous month.

There were five deals of value greater than $100 million, aggregating $2.8 billion and accounting for 79 per cent of total investments made in January 2018.

The largest investment in January 2018 was the $1.7 billion investment into HDFC Ltd. by GIC, KKR and others, the largest PIPE investment since Temasek invested about $2 billion in Bharti Airtel in 2007. This was followed by Brookfield's buyout of Equinox Business Park, a 1.25 million square foot commercial property, from Essar Group for $384 million.

In November last year, Essar had concluded the sale of its BPO arm Aegis, to Capital Square Partners for $313 million. The Equinox deal is an example of buyouts driven by the deleveraging requirements of large Indian business conglomerates. There are more instances of similar buyouts expected as banks, armed with the recently enacted Insolvency and Bankruptcy Code, work with some of the large, indebted Indian business houses to fund debt reduction by asset sales, divestment, carve outs etc.

In terms of stages of investments, PIPE financing recorded the highest value of investments in the month, on account of the HDFC Ltd. deal, with $2.1 billion recorded across four deals compared to US$128 million recorded across three deals in January 2017. In terms of volume, startup / early stage investing recorded the highest number of deals (24 deals, accounting for almost 50 per cent of the total deals in January 2018). There were three buyouts worth $486 million in January 2018, compared to just $81 million recorded across two deals in January 2017.

From a sector point of view, financial services, carrying on the trend set in 2017, led the activity in January 2018, with US$2 billion invested across eight deals. 2017 was a record year for financial services with investments worth US$7.1 billion.

Exits
January 2018 recorded $970 million in exits, 10 per cent higher than January 2017 and 42 per cent higher compared to the previous month. In terms of volume, there were 26 exits in January 2018 compared to 15 in January last year and 22 in December 2017. While exits via open markets were the highest in terms of number of deals (15 deals), exits via sale to strategic buyers was highest in terms of value ($439 million).

The largest exit in January 2018 saw Arrow Electronics, an American Fortune 500 company into electronic components and computer products, acquiring E-Infochips, a Gujarat-based company that is into chip design and embedded systems, from Gujarat Venture Finance for $281 million. Another large exit during the month saw Sterlite Power Transmission purchase a 28.4 per cent stake in Sterlite Power Grid Ventures, from Standard Chartered Private Equity for $158.5 million.

In terms of sectors, industrial products (6 deals) and food and agriculture (4 deals) recorded the highest number of exits. In terms of value, technology was the top sector with exits worth US332 million.

Fund Raise
2018 had a rather tepid start to the fund raising activity, with only $91 million raised in January; nonetheless, fund raise plans announced stood at US$7 billion, a sign of strong fund raising activity to follow as the year progresses.