PE/VC investments record best 1Q since 2008: EY report

The first quarter of calendar year 2018 (1Q2018) recorded investments worth $7.9 billion across 180 deals, a record performance for the private equity and venture capital sector, led by large deals in the infrastructure and real estate sectors. 

The PE/VC investment activity eclipsed the previous first quarter high of $4.6 billion seen in 2008 by 72 per cent, according to a report by EY.
Continuing the momentum from last year, the record performance was led by large deals in the infrastructure and real estate sectors. Also, financial services continued to be the top sector, receiving $2.9 billion in investments across 31 deals.
Further to the trend established last year, large value deals (over $100 million) continued to dominate the activity. The reporting quarter recorded $1.8 billion in exits, 10 per cent lower than 1Q2017 (worth $2 billion, 61 exits) and 51 per cent lower compared with 4Q2017 ($3.7 billion, 64 exits), according to EY’s private equity monthly deal tracker.
“PE/VC investment activity is clearly on a high. 1Q2018 has been the strongest first quarter in recent years and we believe this year will be strong across all asset classes of PE, infrastructure and real estate. Exits in 1Q2018 have been muted compared with 4Q2017 largely on account of volatility in the capital markets. However, there are strong undercurrents of M&A at play. If they materialise and capital markets hold fort, PE/VC exits in 2018 should end on a good note,” said Vivek Soni, partner and leader for Private Equity Advisory at EY.
Investments in infrastructure and real estate, by PE / VC funds in 1Q2018, were more than 50 per cent of the amount invested in these asset classes in the whole of 2017. Besides these large investments into infrastructure and real estate, quarterly PE / VC investments have taken a dip in 1Q2018, closing at $4.8 billion after $5.6 billion in 4Q2017. 
However, on a year-on-year basis, 1Q2018 remains the best first quarter for PE/VC investments even after setting aside these large investments in infrastructure and real estate.
There were 13 deals of value greater than $100 million made in 1Q2018, aggregating to $5.7 billion and accounting for 72 per cent of total investments made in 1Q2018, six of which were into infrastructure and real estate, worth almost $2.7 billion. 4Q2017 and 1Q2017 had 17 and six deals greater than $100 million, respectively, it added.
The largest deal during the quarter saw GIC, KKR and others invest $1.7 billion into HDFC Ltd, the largest private investment in public equity (PIPE) investment since Temasek invested about $2 billion in Bharti Airtel in 2007. 
The first quarter also recorded the first-ever investment by India’s sovereign wealth fund National Investment and Infrastructure Fund (NIIF),  with Hindustan Infralog Private Ltd, a joint venture between NIIF and DP world, buying a 90-per cent stake in Continental Warehousing Corporation (Nhava Sheva) Ltd for $400 million. 
The deal provided an exit to a clutch of early investors including Warburg Pincus, IFC and others (See: DP World, NIIF venture Hindustan Infralog to acquire 90% stake in Continental Warehousing). 
The first quarter also recorded the largest PE/VC investment in the Indian infrastructure asset class, with Macquarie purchasing tolling rights to 648km of national highways from the NHAI for $1.5 billion. This is India’s first toll-operate-transfer (TOT) project and is also one of the largest foreign investments in the Indian public infrastructure.
In terms of stage of investment, the buyouts category received the largest share of investments (34 per cent, $2.7 billion across 12 deals), primarily on account of the large Macquarie TOT deal. Out of the 12 buyout deals, six were in the infrastructure and real estate sectors, worth $2.3 billion. Excluding, infrastructure and real estate investments, PIPE category ($2 billion) received the largest share of PE/VC investment.
In terms of volume, start-up/early stage investing recorded the highest number of deals (82 deals, accounting for almost 46 per cent of the total deals in 1Q2018).
Notwithstanding the large investments in infrastructure and real estate, carrying forward the trend seen in 2017, the financial services sector garnered the highest share of PE/VC investment in 1Q2018, with $2.9 billion invested across 31 deals, the highest quarterly investment into the sector. In 2017 was a record year for financial services with investments worth $7.2 billion.
From a monthly perspective, March recorded $3 billion in deal value, an increase of 14 per cent compared with $2.6 billion recorded in March 2017. This growth was primarily driven by some large investments into the infrastructure and real estate sectors. Excluding these asset classes, PE/VC investments in 2018 have recorded a declining trend with $951 million recorded in March, compared to $1.2 billion in February and $2.7 billion in January.
Exits in 1Q2018 were marred by volatility in the global capital markets which were rattled by fears of a trade war between US and China. 1Q2018 recorded $1.8 billion in exits, 10 per cent lower than 1Q2017 and 51 per cent lower compared with 4Q2017.
Exits via strategic sale were the highest in terms of value ($597 million), while in terms of number of deals, exits via open market operations were the highest (20 deals). There were four PE/VC backed IPOs in 1Q2018 wherein PE/VC funds garnered $172 million via offer for sale. IFC and GIC’s $125 million exit from Bandhan Bank Limited was the largest exit via an IPO by a PE/VC fund in 1Q2018.
Fund raising
Fund raising activity in 1Q2018 remained strong, with funds worth $1.3 billion raised, on par with funds raised in 1Q2017. Moreover, fund raise plans announced stood at $10.3 billion, a sign of strong fund raising activity to follow as the year progresses.