Private Equity Investment Declines In India For First Time In 6 Years
Venture Capital (VC) deals fell 15.53 per cent in 2008 from a year earlier according to data compiled by Venture Intelligence a company which tracks VC and PE deals. Private Equity transactions fell by 23.8 per cent in 2008 compared to a year earlier largely because entrepreneurs were unwilling to accept lower valuations.
There were a total of 125 VC deals in 2008 valued at US$ 740 million during 2008, whilst Private Equity recorded a drop in the value of transactions for the first time in six years. PE firms invested US$ 10.74 billion in 399 deals during 2008 compared to US$14 billion invested in 439 deals during 2007.
Most PE transactions occurred during the first half of 2008 with activity coming to a standstill in the second half of the year as investors became more risk averse as the global credit crisis continued to rage unabated.
Arun Natarajan, founder and CEO, Venture Intelligence said “The October-December period in 2008 became a challenge for investors, entrepreneurs were unwilling to relax valuations, hoping markets would return to normal,”. Mr Natarajan went on to add that this was the first year on year decline in PE investments in India since 2002.
The largest deal in 2008 was the US$ 640 million investment made by Providence Equity Partners for a 20 per cent stake in mobile telephone company Idea Cellular, the listed subsidiary of Aditya Birla Telecom.
Commenting on the decline Mr. C Venkat Subramanyam, director, Veda Corporate Advisors. said “The correction in secondary markets was sudden, swift and it took everyone by surprise. There was a feeling that it would reverse, so entrepreneurs didn’t want to renegotiate prices. Investors, on the other hand, didn’t know where this price correction would end,”
Late stage deals accounted for 38% of the share in volume terms and 51% in value terms during 2008. While companies based in South India attracted slightly higher number of investments, their peers based in Western India attracted a higher share of the pie in value terms.
Among cities, Mumbai based companies occupied the top slot, with 105 deals worth $3.2 billion, followed Delhi/NCR with 74 investments worth $3 billion and Bangalore with 64 investments worth $1.3 billion. Hyderabad and Chennai followed attracting 35 investments each in 2008.
The IT and ITES remained the favoured industry for PE investment during 2008 with 107 deals and US$ 1.6 billion invested, though investment in energy sector actually ended up topping the investment chart in 2008 with US$ 1.7 billion invested in 19 deals. Sequoia Capital India became the most active PE investor in India surpassing Citigroup.
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