INDIA BUSINESS WORLD - APRIL 1st - APRIL 15th - 2008
PES INVEST $3.3 B IN JAN-MARCH ’08
The storm that hit the western financial markets might be shaking Indian ships as well, but one vessel seems to be sailing quite well—Indian companies raising private equity (PE) funds. PE firms invested about $3.3 billion in the first three months of this year, $0.6 billion more than in the same period last year, according to a study by Venture Intelligence, a research service focused on PE and venture capital.
"Last year, PEs competed with the public markets for investments. If the competition for public markets slows down, then more deals will get done among companies that see PE as an alternative to raising money from the markets," said Venture Intelligence founder & CEO Arun Natarajan.
Mr Natarajan added that the choppy market conditions would not be conducive for Pre-IPO and PIPE (private investment in public equity) deals in the medium term. Also, the spurt in deals in the late stage segment account for 60% of the amount invested during Q1 2008.
The amount invested during the quarter was higher than that during the same period last year (which witnessed 101 deals totaling $2.7 billion) but lower compared to the immediate previous quarter (which witnessed 131 deals totaling $5 billion).
"The October-December period has been the biggest quarter for PE investments in the last three to four years. So, a sequential decline in the deal size is not unusual," Mr Natarajan added.
However, since most of the deals that happened during Q1 2008 were possibly mandated late last year, the effect of the turbulent markets on PE deals will be felt in the next few quarters. "There will be a lag effect in the next one or two quarters," Mr Natarajan said.
The largest investment reported during Q1 2008 was $395 million raised by Sophia Power Company, a part of the Indiabulls Group, from Lakshmi Mittal-promoted LNM India Ventures and Farallon Capital. Telecom continued to attract investor interest with KKR and Morgan Stanley investing significant capital into outsourced tower infrastructure firms such as Bharti Infratel and TowerVision, respectively.
"PE firms see infrastructure as an attractive segment because the spend on infrastructure is not linked to temporary market situations. Also, since they have a domestic focus, it's fairly insulated from turmoil in Western markets," Mr Natarajan added. Other companies that raised $100 million plus rounds during the period-included Cairn India, Ballarpur Paper Holdings, travel technology firm InterGlobe Technology Quotient and the hospital Narayana Hrudayalaya.
PE investors chose to invest across a broad range of industries during Q1 '08. While Energy and Telecom attracted the most capital, information technology and IT-enabled services (ITeS) continued to account for the most number of deals. Other industries that attracted significant PE capital during the period included manufacturing, healthcare & life sciences and banking, financial services and insurance (BFSI).
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