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Private Equity Deals Fall To $16-billion In 2016; Markets Pin Hope On New Year

Private equity investments fell to $16 billion in 2016 amid slump in valuations, especially in once-venerated ecommerce sector, but the markets are hoping for hectic deal activities in the new year

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Private equity investments fell to $16 billion in 2016 amid slump in valuations, especially in once-venerated e-commerce sector, but the markets are hoping for hectic deal activities in the new year.

According to experts, the private equity space was abuzz with deal activities throughout the year, both in terms of exits and investments, but the kitty was smaller in comparison to 2015. In fact, most of the IPOs in 2016 were offer for sale by PE owners, which were well received among investors.

According to PwC, overall PE Investments amounted to $16.3 billion across 652 deals, registering year-over-year 18 per cent decline in terms of value and 23 per cent in terms of volume, respectively.

The year 2016 witnessed around $7.2 billion worth of exits with strategic sales contributing around 42 per cent of the value, as per PwC data.

According to another major consultancy Grant Thornton, the year saw around a 1,000 transactions contributing just below $ 12 billion in value. While the number of transactions remained almost the same as 2015, there was a fall of 25 per cent in the overall valuation.

"2016 struggled to witness large transactions in the PE space and this was perhaps because the focus for the last couple of years has been on the start-up sector where transaction sizes have been relatively small," said Prashant Mehra, Partner, Grant Thornton India LLP.

The trend of investments has remained "difficult and different" in 2016 and the year saw many e-tailers reporting a significant decline in number of orders.

Global investment bank Morgan Stanley marked down Flipkart valuation for the third time to $5.6 billion. The e-retail giant was valued at around $15 billion in June 2015 when it last raised funds.

In a major transaction, Jabong was sold to Flipkart for just $70 million in July 2016. Jabong got valued at around 0.5 times of its reported 2015 topline.

Moreover, during the year hyperlocal delivery startup -- PepperTap reportedly shut operations in six large cities, while Grofers decided to close operations in nine cities.

"Many e-tailers reported significant decline in number of orders as they cut discounts leading to drop in their GMV raising eyebrows on their fresh funding rounds and valuations," Corporate Professionals Founder Pavan Kumar Vijay said.

He further said that investors are now focusing on past performance, scalability and entry barriers and also unit economics.

However, experts believe that the deal momentum should accelerate going ahead as macro-economic factors are positive.

"With macro-economic factors continuing to be positive and with economic reforms demonstrating early signs of growth, PE monies will shift focus to the Consumer & Industrial sector to fund both organic growth and consolidation in the domestic industry," Mehra said.

He further said that "PE will perhaps be visualised as an alternative means of financing consolidation for large and select corporates and this may result in the long-awaited big ticket transactions in the PE space."

Sanjeev Krishan, transaction services leader at PwC India, said deal momentum looks positive on PE front with some of the pension funds getting very active in India and this trend is expected to continue in 2017.

He further said the anticipated volatility in the public markets to direct corporates to private capital, with financial services, healthcare, technology, logistics, consumer and consumer derivatives expected to be the big themes.

Echoing similar sentiments, Mergermarket India Bureau Chief Savitha Kraman said, "2017 certainly looks positive for PEs which would continue to exit via IPOs. Other mode of exits would depend on expectations. Pharma, healthcare and renewables sector could attract PE investments."

Consumer sector could also see some PE investments as India continue to witness growth in consumer spending, Kraman added.

There are some early signs of revival and deal activity has picked up a bit in recent months but mostly consolidation is seen in many sectors and it is expected to be continued for quite some time now.

"PE rounds are smaller now and taking longer to close. New norm is the single-digit Pre-Money Valuation now. B2B is back to action (compared to the early euphoria of B2C earlier) as business customers are more likely to stay once they get value," Vijay said.

Experts are of the opinion that the government's digital push would certainly help the internet start-up companies. Firstly, valuations are getting reasonable and amid governments' push on digital economy, it could be the best time for internet companies.

Further, GST would make the country unified by applying one Tax and would help in ease of business also, they added.

(PTI)


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