The month of February saw private equity and venture capital (PE/VC) investments worth $1.7 billion across 74 deals, with $677 million invested as growth capital, according to an IVCA-EY report. Exits recorded $321 million across 15 deals, with open market exits accounting for 83 percent of the total value of exits, the report said.

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The impact from COVID -19 is expected to further affect investments given the disruption of businesses, as per the report.

“After a good start to PE/VC investments in 2020, both investment and exit activity have declined considerably in February 2020. The decline in value of PE/VC investments is primarily on account of the number of large deals (>$100m) going down substantially," said Vivek Soni, Partner and National Leader for Private Equity Services at EY India.

"Over 70 percent of overall Indian PE/VC investments in the past three years are accounted for by >$100m deals, which are primarily funded by foreign capital managed by global / regional GP’s and sovereign wealth funds / pension funds," he added.

According to the report, uncertainty over the impact of COVID-19 is expected to act as a significant headwind to Indian PE/VC investments. The rapid global spread of the pandemic over the past 30-45 days has spiked business risk premiums, which has already led to significant downward correction in capital markets around the world, bringing high volatility to the home markets of global/regional GP’s and sovereign wealth funds / pension funds that have been making >$100m investments in India.

Further, travel restrictions and inability of people to meet face-to-face is expected to delay work-in-progress deals and limit the number of new deals from being struck.

"We believe the above, coupled with domestic issues concerning taxation policies impacting InvIT’s and REITS and lingering issues over the financial health of some of our domestic banks and NBFCs, will act as sentiment dampeners, potentially slowing down large ticket PE/VC investments in the short term. In the medium term, as valuations moderate, we expect this dislocation to open up good opportunities for PE/VC investors," Vivek Soni explained.

Investments

PE/VC investments in February 2020 recorded a 24-month low of $1.7 billion. These were 39 percent lower than $2.8 billion recorded in February 2019 and 32 percent lower compared to January 2020 ($2.5 billion). The decline in value was mainly on account of fewer large deals (value greater than $100 million). In terms of volume, number of deals in February 2020 were 21 percent higher than February 2019.

There were five large deals worth $700 million in February 2020 compared to nine deals worth $2.0 billion last year and five deals worth $1.4 billion in January 2020. This is the lowest aggregate value of large deals in over 19 months. The largest deal announced in February saw General Atlantic invest $200 million in BYJU’S, an edtech company, followed by Warburg Pincus’ investment of $150 million in Apollo Tyres Limited.

In terms of deal type, in February 2020, growth capital deals were the highest in value with $677 million recorded across 15 deals, recording 55 percent y-o-y decline ($1.5 billion in February 2019) followed by start-up investments worth $562 million across 44 deals, 3.6x higher y-o-y ($154 million in February 2019) and PIPE investments worth $260 million, 40% y-o-y decline ($431 million in February 2019). Buyouts recorded investments worth US$209 million across three deals compared to $187 million across two deals in February 2019.

From a sector point of view, education sector ($311 million across five deals) has emerged as the top sector for the first time due to the large investment in BYJU’S, followed by technology ($271 million across 18 deals) and real estate ($232 million across three deals). Financial services, that has traditionally been one of the top sectors, was relegated to the fifth place with $162 million invested across nine deals.

Exits

February 2020 recorded 15 exits worth $321 million, 32 percent lower than the value of exits recorded in February 2019 ($472 million) and 30 percent lower than January 2020 ($461 million). The largest exit in February 2020 saw Baring India Private Equity sell its 4.9 percent stake in Manappuram Finance Limited for $101 million. In February 2020, open market exits were highest at $266 million across seven deals, accounting for 83 percent of total exits by value. Financial services sector ($305 million across six deals) was the top sector in February 2020, accounting for 95 percent of all exits by value.

Fund raise

February 2020 recorded total fund raises of $603 million compared to $285 million raised in February 2019. The largest fund raise during the month saw Caisse de dépôt et placement du Québec (CDPQ) and Piramal Asset Management setup a US$300 million platform for credit financing. The month also saw fund raise plans worth $51 million being announced compared to $779 million last year.