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PE exits rose 2% in value terms in 2016: Bain and Co. report

LiveMint logoLiveMint 29-03-2017 Swaraj Singh Dhanjal

Mumbai: Private equity (PE) exits in India rose 2% in value terms to $9.6 billion in 2016, Bain and Co.’s India Private Equity Report 2017 said. In 2015, there were total exits worth $9.4 billion.

The exit momentum continued for the second year, even as overall PE investments witnessed a slight dip in 2016.

The year saw large transactions such as KKR’s exit from Alliance Tire Group in a $1.2 billion strategic sale, Temasek’s $700 million exit from Bharti Telecom and CX Partners and Capital Square’s exit from Minacs in a $420 million strategic sale. Public market sales including IPOs remained subdued in 2016, and there was a marked increase in the number of strategic and secondary sales. Also, average deal sizes were significantly higher for strategic sales and buybacks.

The number of exits, though, fell 8% to 197 in 2016.

Manufacturing and healthcare sectors led exits, with the two sectors seeing exit deals worth $2.5 billion and $1.5 billion, respectively.

Still, PE funds are sitting on a large amount of investments. According to the report, investments worth almost $10 billion made in 2008-12 are yet to see an exit. Most of these unsold investments are in IT, telecom and financial sectors. “PE funds aim to adopt a wait-and-see policy for these deals in 2017 and plan to continue working on the portfolio in the meantime,” the report said.

At $16.8 billion, the total deal value in 2016 was the second highest in nine years. While the deal value in 2016 was lower than the high point of 2015 ($22.9 billion), the drop was primarily the result of a slowdown in large consumer technology deals.

Banking, financial services and insurance (BFSI), IT and manufacturing were high-growth sectors and contributed to half of the total deal value. “Deals in BFSI were fuelled by multiple investments in non-banking financial companies (NBFC) that have thrived in segments that are either inaccessible or unattractive for traditional banks. NBFC business models demand heavy infusions of capital, and investors were ready to deploy capital in strong performing pure-play NBFCs, housing finance companies and microfinance institutions,” the report said.

The year witnessed several big deals such as Blackstone’s $1.1 billion investment in IT services firm Mphasis, a $500 million investment by Caisse de depot et placement du Quebec (CDPQ) of Canada, Kuwait Investment Authority and State General Reserve Fund of Oman in energy platform Resurgent Power Ventures and Advent, GIC and Bain Capital’s $350 million investment in QuEST Global.

The year 2016 was also good for PE fund-raising in India.

Even as overall capital allocation to Asia saw a drop of 16% to $43 billion in 2016, India remained an attractive destination for investments, as funds allocated to the country rose 8% from a year ago to reach $4 billion.

At $9 billion, Indian dry powder remained at levels similar to 2015, according to the report, indicating no shortage of capital for good-quality deals.

According to Bain & Co., new asset classes such as alternative investment funds (AIFs) have grown in the Indian market, on the back of government regulations and tax breaks.

“Registered AIFs in India have more than doubled over the past two years and stood at approximately 270 in 2016. AIFs have also been a significant contributor to overall fund-raising in the Indian market and contributed to 41% of the total India-focused funds raised in 2016, compared with only 11% in 2014,” the report said.

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