After a listless year, private equity players brace for deal flurry

Stock market stability and improvement in business confidence. The two indicators have, after an annus horribilis, got the juices flowing for private equity (PE) players. The slowdown in deals in the first half of calendar 2009, experts say, was because there was no clarity on the bottoming out of the markets.

“Things have changed after May. Assuming that PEs may have started looking at deals starting June, a decent six months have been invested on analysing them. I think we will start seeing deal closures in the next 4 to 6 months. These will be a mix of medium to large-ticket deals,” said Gaurav Deepak, managing director, Avendus Capital.
Darius Pandole, partner, New Silk Route Advisors, concurs.

“We should be making 4 to 5 investments, if not more, in the coming 6 months or so. The placements will be within our investment sweetspot (range) of $40-80 million,” Pandole said.

New Silk Route, loaded with a corpus of $1.4 billion for its Asia-focussed fund, provides growth capital to companies operating in infrastructure, telecom, banking and financial services, food, consumer and manufacturing sectors. It has till date made 10 placements of which 2 are outside India.

Consensus on Private Equity Street is that the first two quarters of calendar 2010 will see a closure-flurry across sectors.

Alok Gupta, managing director & CEO of Axis Private Equity, says he is also bracing to make investments. These will be fresh, no follow-on stuff.

“It could either be in renewable energy, logistics or healthcare. The investment range will be $20-30 milion bracket,” Gupta said.

But he says the macro environment has to be considered when it comes to investments. “It’s not that individual sectors are doing well and hence the increase in deal activity. I think the recovery in the stock market and a stable business environment in the last two quarters coupled with enhanced focus and commitment from the central and state governments towards infrastructure development has certainly enhanced the confidence level across businesses,” Gupta said.

Bharat Banka, founding managing director & CEO of Aditya Birla PE is the most gung-ho. He sees deal closures across the calendar year 2010.

“Enough time has been spent on carefully picking up potential investment tartets so closures will certainly follow suit. Besides, those who were sitting on the fence earlier owing to a volatile market scenario are now confident to take the plunge,” said Banka.
In October, Aditya Birla PE made its first closure of $120 million and is currently in the process of making a second closure of another $100 million by the end of this fiscal.
Luis Miranda, managing director of IDFC Private Equity, feels the environment is still challenging in terms of valuation.

“There will be more deals for sure but valuation remains a major area of concern. We are certainly looking at some interesting companies but I can’t comment on the investment activity plan at this stage,” Miranda said.

A study by Grant Thornton India showed that despite the revival in the second half of the year, the total value of deals (mergers & acquisitions and PE) announced in the calendar year 2009 (January-December 13) was $21.20 billion as against $41.54 billion in 2008 and $70.14 billion in 2007.

Private equity and QIP deals announced in 2009 stands at 221, valued at $11.17 billion compared with 312 deals valued at $10.59 billion in 2008 and 405 valued at $19.03 billion in 2007.

CG Srividya, partner, specialist advisory services at Grant Thornton India, there has been a decline in deal volume this year as investors continued to focus on existing portfolios and applied greater precaution while selecting targets for investment.

“The average ticket size, however, increased from $33.93 million in 2008 to $50.55 million during 2009. The top 8 deals accounted for more than 41% of the total industry deal value in 2009. In 2008, the top 8 deals accounted for just 28% of total deal values for the whole year,” Srividya said.