Move over IT and telecom. The year 2007 belongs to banking, financial services and insurance, at least as far as private-equity deal flow is concerned.
Pips IT, telecom and manufacturing; analysts see deal flow soaring further
MUMBAI: Move over IT and telecom. The year 2007 belongs to banking, financial services and insurance, at least as far as private-equity deal flow is concerned.
Twenty-nine deals, valued at over $3 billion, have been consummated in this sector, more commonly referred to as BFSI, in the first nine months of 2007.
This is according to the data provided by Venture Intelligence, a research outfit tracking venture capital and private-equity investments in India.
Nobody is surprised at the traction the sector has gained, what with a huge bounty expected in 2009. Says Mahesh Chhabria, director, 3i India, the Indian arm of UK-based private equity firm 3i:
“BFSI is driven by regulatory changes and the underlying growth demographics story. The RBI has said that it will open up the banking sector by April 2009, and this has led many to invest now, to be able to cash out then.”
Big-ticket PIPE (private investment in public enterprises) deals such as Carlyle and Citi investing a cumulative $760 million in HDFC, and Dubai Holdings investing $717 million in ICICI Bank, also helped this sector bag the top honours this year.
“Besides, BFSI is most closely linked to the GDP growth and the rise of consumer demand. From 2009, there is likely to be a paradigm shift and value creation is now top of the mind,” says Ankur Pahwa, director, Protiviti, an independent risk consulting firm started by ex-Arthur Andersen employees.
He feels investments in this sector are only set to grow as the restrictions lift. “It’s only a matter of time.”
Shiraz Bugwadia, director of o3 Capital, a full-service investment banking outfit, has a different take.
“Within BFSI, broking firms would have attracted the largest chunk of investments. Motilal Oswal Securities, Edelweiss Capital, Religare Securities are a few that were able to make pre-IPO placements as a result of the buoyant stock markets, and as a result, a roaring business,” he said.
The second-largest sector by value of private equity deal flow this year has been engineering and construction. Venture Intelligence says it received $1.4 billion in investments from private equity firms, across 21 deals.
Bugwadia feels it’s going to be this infrastructure and construction story that’s more sustainable over the longer term than BFSI. “Basic infrastructure needs, be it in roads, airports or ports, has just started getting met, and this will continue for sometime. Financial services, meanwhile, will be driven by how long the feel-good factor in the
stock markets persists,” he said.
So much interest in these two sectors has meant IT & ITeS, the top sector in 2006, being displaced to No 4 in 2007.
“Can you think of any unlisted IT company that is relatively big?” asks Chhabria of 3i. His question probably explains why deal sizes in this space are small, and are being done more by venture capitalists than private equity funds.
Two blockbuster deals in this space in 2007, however, were Blackstone’s $109 million investment in Intelenet Global Services, and General Atlantic’s $63 million investment in Infotech Enterprises.
“Fundamentally, there’s nothing wrong with IT companies. It’s just a matter of perception now, with the dollar’s depreciation against the rupee,” says Bugwadia.
Meanwhile, manufacturing retained its hold at No 3, though telecom, which occupied the No 2 slot in 2006 fell out completely from 2007’s Top 5 list of sectors.
A new entrant, media and entertainment, made it to No 5, aided by the $123 million investment of 3i, Cisco and Oman International Fund in Nimbus Communications, and the $60 million investment of ChrysCapital in Hathway Cable.
It’s indeed a rise of new stars.
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