PE/ VC investments in 1H2022 up by 28% to $34.1 billion, says IVCA-EY data

Private Equity (PE)/ Venture Capital (VC) investments in India rose by 28 per cent during the first half of 2022 to $34.1 billion across 714 deals, including 92 large deals worth $23.7 billion, according to IVCA-EY data. But a 32% decline sequentially.

Vivek Soni, Partner and National Leader, Private Equity Services, EY India said,  despite recording a sequential decline amid global headwinds of tightening liquidity and rising inflation, the PE/VC investment flow into India has remained robust, maintaining a monthly average run-rate of $6 billion, which is in line with last year.

Start-up investments continue to lead recording a 53% y-o-y increase in 1H2022, they have declined by a third compared to the second half of last year when start-up deals were at an all-time high. Buyouts have been the lowest since the first half of 2020, which was impacted by COVID, recording $4.3 billion across 25 deals, a 46% decline y-o-y and 70% decline sequentially.

While India’s position as an attractive destination for PE/VC investments is expected to remain strong in 2022 given its high growth and macroeconomic and policy stability, the continuing geopolitical tensions, rising inflation, strengthening dollar, quantitative tightening by the US FED, crude oil price spikes and fears of a global recession remain key downside risks, making investors circumspect. We continue to remain ‘cautiously optimistic’ about 2022 PE/VC investments exceeding the 2021 record highs.” said Soni.

Investments

According to IVCA-EY data on a half-yearly basis, PE/VC investments in 1H22 recorded a 28% increase y-o-y, but declined by 32% sequentially ($34.1 billion in 1H22 vs. $26.7 billion in 1H21 and $50.4 billion in 2H21). 

In terms of number of deals, 1H22 recorded an increase of 37% compared to 1H21 and a decline of 4% compared to 2H21 (714 deals in 1H22 vs. 522 deals in 1H21 and 748 deals in 2H21). Despite recording a sequential decline amid global headwinds of tightening liquidity and rising inflation, the PE/VC investment flow into India has remained robust, maintaining a monthly average run-rate of S$6 billion, which is in line with last year.

Pure play PE/VC investments (excluding real estate and infrastructure sectors) in 1H22 were 29% higher compared to 1H21 and accounted for 79% of total PE/VC investments ($28.0 billion in 1H22 vs. $21.7 billion in 1H21).

First half of 2022 recorded 92 large deals (value greater than $100 million) aggregating to $23.7 billion (compared to 70 large deals aggregating to $19.5 billion in 1H21), However, the value of large deals in 1H22 was 41% lower than 2H21 that had recorded 112 large deals aggregating to $40.3 billion. 

The largest deals in 1H22 saw Bodhi Tree acquire a 40% stake in Viacom18 for US$1.8 billion followed by a group of investors including CPPIB, Sofina, Sumeru Ventures and others investing $805 million in Dailyhunt.

Start-up investments were the highest in 1H22 with $13.3 billion invested across 506 deals, a 54% y-o-y increase ($8.6 billion across 327 deals in 1H21), followed by growth investments, at $11.4 billion across 106 deals, 41% y-o-y increase ($8.1 billion across 95 deals in 1H21). Buyouts were the only deal segment that recorded a decline in PE/VC investments in 1H22, at $4.3 billion across 25 deals, a 46% y-o-y decline ($7.9 billion across 25 deals in 1H21). Credit investments grew more than threefold to $3.1 billion across 46 deals ($838 million across 42 deals in 1H21). PIPE deals recorded US$2.0 billion across 31 deals ($1.2 billion across 30 deals in 1H21).

From a sector perspective, the financial services sector was at the top in 1H22 with US$7.3 billion recorded across 152 deals, almost double the value recorded last year (US$3.7 billion across 98 deals in 1H21) and the second highest level of half-yearly value of investments in the sector, following the all-time high recorded in 2H21 of $8.0 billion. E-commerce was second in line with $4.2 billion invested across 101 deals, 16% lower than $5 billion recorded across 82 deals in 1H21 followed by the technology sector with $4 billion recorded across 121 deals, a 20% y-o-y decline (US$4.9 billion across 52 deals in 1H21).

The media and entertainment industry has emerged as a new sector of interest for PE/VC investors, recording US$3.4 billion across 41 deals more than twice the value recorded in 1H21 (US$1.3 billion across 30 deals), and the highest half-yearly value of investments in the sector. Another sector that has seen significant PE/VC interest is the education sector, recording US$2.2 billion across 42 deals in 1H22, the highest half-yearly value and 57% higher than 1H21 (US$1.4 billion across 42 deals).

Infrastructure sector PE/VC deal trend

In the previous decade, the infrastructure sector was the second largest sector behind financial services for PE/VC investments, with US$34.9 billion invested across 292 deals.

In the past five years, renewables and roads sectors were the top two sub-sectors both in terms of value and volume, each receiving more than US$9 billion in investments.

Brookfield was the largest investor in the past five years, deploying over US$6 billion followed by GIC, CPPIB, KKR and Macquarie.

However, with easing liquidity and falling yields globally post the pandemic, the focus of PE/VC players shifted to growth-oriented e-commerce and tech-oriented businesses in 2020 and 2021.

There has been a renewed interest in the infrastructure sector in 2022, with 1H2022 recording US$2.7 billion in investments and we expect the trend to continue in the second half of the year.

In a rising inflation environment infrastructure sector can provide a good hedge as returns from most infrastructure assets are inflation hedged.

Further, with increasing direct investments by pension funds and SWFs, the emergence of new investment vehicles like InvITs, favorable policies from the Government, and a substantial asset monetization pipeline of large infrastructure assets by the Government as well as corporates, the infrastructure asset class are expected to remain one of the priorities for PE/VC funds.

Exits in the infrastructure sector in the past five years have been very few, dominated by a couple of large strategic exits in the renewables space in 2021 and 1H2022, which were incubated and developed over the past 4 to 5 years.

On a year-on-year (y-o-y) basis, overall exits recorded a 57% decline in terms of value in 1H22 (US$9.6 billion) compared to 1H21 (US$22.3 billion) and a 54% decline compared to 2H21 (US$21 billion). The decline was on account of smaller deal sizes. Further, the deal value on a third of the deals (47 deals) were undisclosed, which too impacted the aggregate exit value reported. The number of exits in 1H22(120 exits) were at par with 1H21 (120 exits) and 25% lower compared to 2H21 (161 deals).

Exits via strategic sale were the highest with US$4.0 billion recorded across 72 deals, accounting for 42% of all exits in 1H22 which was mainly on account of the large Brookfield-IndInfravit deal worth US$1.2 billion. On a y-o-y basis, strategic exits recorded a 69% decline in value (US$12.7 billion in 1H21), mainly due to the absence of large deals. Moreover, data was unavailable on 40 out of the 72 strategic deals which also lead to a lower aggregate value. Next in line were open market exits at US$2.5 billion (24 deals), a 15% y-o-y decline (US$2.9 billion in 1H21). Exits via a secondary sale (sale to other PE funds) recorded 15 deals worth US$2.3 billion, ~50 y-o-y decline both in terms of value and volume (US$4.5 billion across 32 deals in 1H21).

IPO

Amid the sharp downturn in the capital markets in 2022, the IPO pipeline has gone dry with many companies either postponing or withdrawing IPO plans. As a result, PE-backed IPOs recorded a modest US$423 million in exits across seven IPOs in 1H21 compared to US$1.4 billion recorded across 14 IPOs in 1H21.

From a sector perspective, the infrastructure sector recorded the highest value of exits in 1H22 (US$2.8 billion across three deals) which is the highest ever half-yearly value of exits recorded by the sector. This was mainly on account of two deals - Shell Plc’s buyout of Solenergi Power from Actis for US$1.6 billion and IndInfravit’s buyout of five road assets from Brookfield for US$1.2 billion, which were also the largest exits in 1H22. Financial services was the next big sector with 20 exits worth US$2.0 billion, 21% lower compared to 1H21.

Fundraise

1H22 recorded US$9.9 billion in fundraises, 28% higher compared to fundraise of US$7.7 billion recorded in 2021 (full year). This is the highest half-yearly value of funds raised in over six years both in terms of value and number of fundraises. The largest fundraise in 1H22 saw Sequoia raise its largest ever India dedicated fund of US$2.0 billion.

In addition to early-stage and start-up-focused funds, climate-focused funds raised over US$1 billion in 1H2022, the largest among which was the US$671 million raised by Green Growth Equity Fund, India’s largest climate impact fund by EverSource Capital to invest in climate-positive businesses and platforms spanning renewable energy, energy efficiency, e-mobility, resource conservation, waste and water management and associated value chains.

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