Private equity roundup — India

Q2 2012 Private equity roundup — India Private equity roundup is a quarterly newsletter on trends and perspectives related to private equity (PE) activity in India. In this issue: Overview.........................................2 Transactions....................................3 Fund focus ......................................5 PE-backed IPOs................................5 PE exits (excluding IPOs) ..................6 Tax and regulatory update................6 Outlook...........................................9 Methodology.................................10 Despite a slowdown in quarterly investment and exit activity, improvement in June is encouraging Private equity (PE) deal activity in the second quarter of 2012 dropped to the lowest levels seen since Q2 2010. PE investments dipped 15% from US$1.96b in Q1 2012 to US$1.66b Q2 2012. However, much of the slowdown was largely in May. This may be accountable to adverse budget proposals announced in March, as June saw a significant increase in monthly activity — following the clarification of many of the budget proposals. Interestingly, about half of the investments by value (46%) during Q2 2012 were made in June. So while the whole quarter’s topline numbers do not seem encouraging, total investments clearly improved in June, in part driven by greater big-deal activity. Exit activity also slowed down in Q2 2012, with a similar dip in May. There were 24 PE exits in Q2, compared with 33 PE exits in Q1 2012 — a 27% decline. This was driven by the depreciation of the rupee, a significantly high number of open-market exits in February and concerns around budget proposals. But, as with investment activity, there has been an improvement in the level of exit activity in June 2012. A number of tax and regulatory announcements benefiting PE funds were released in Q22012. These include reduction in the capital gains tax, deferral and proposed rationalization of General Anti-avoidance Rules (GAAR) and the notification of Alternative Investment Fund (AIF) regulations. The PE industry in India is facing interesting times. Tailwinds are pushing the industry forward in the shape of rupee depreciation (especially beneficial for investments), the Indian Government’s positive attitude toward regulations impacting the PE industry and continuing interest of global investors (with significant dry powder). Adversely, there are headwinds in the form of exit challenges (largely because of rupee depreciation and shallow capital markets/IPO opportunities), a difficult fund-raising environment and, continuing (butabating) valuation challenges with promoters. Overall, the first two quarters of 2012 carried the hangover of the second half of 2011. Deal activity for the rest of 2012 is expected to continue to be moderate, with portfolio exits being a major focus. Overview Moderate deal activity in Q2 2012 Q2 2012 witnessed PE deals worth US$1.66b, a decline of approximately 15% compared with US$1.96b of deal value during the previous quarter. This is lowest quarterly PE investment valuesince Q1 2011. Similarly, the number of deals declined Figure 1. Trend in PE investments in Q22012 from Q1 2012. There were a total of 101 deals in Q22012, compared with 116 announced deals during Q12012. India-focused funds completed the most number of deals, but global funds contributed the most in terms of value of completed investments, with their continued focus on investing in the largest deals (more than US$50m) in India. Figure 2. Type of investors 5,000 4,000 95 96 94 94 86 3,000 73 2,000 44 1,000 0 140 122 116 100% 108 120 101 100 80% 80 60% 60 40% 40 20% 20 0 0% 12 57 32 Numberof deals Global Indian 271 387 1006 Value(US$m) Co-investments Sources: VCCEdge and Ernst & Young research Dealvalue Number of deals Sources: VCCEdge, Asian Venture Capital Journal (AVCJ) and Ernst & Young research Note: deal value considers deals where values have been disclosed, while the deal volumes consider all the deals announced in respective quarters. Figure 3. Top 10 PE deals announced in Q2 2012 Month June 2012 May 2012 June 2012 April 2012 April 2012 June 2012 June 2012 April 2012 April 2012 June 2012 Target Continuum Energy Pte. Ltd. Thomas Cook (India) Ltd. Future Capital Holdings Ltd. Quality Care India Ltd. Marico Ltd. Super Religare Laboratories Ltd. Just Dial Intas Pharmaceuticals TVS Logistics Services Ltd. Educomp Solutions Ltd. Investor(s) Morgan Stanley Infrastructure Partners Fairbridge Capital Warburg Pincus India Advent International Corp. GIC Special Investments and Baring Private Equity Partners Jacob Ballas Capital India and International Financial Corp. Sequoia Capital India and SAP Ventures ChrysCapital V LLC Kohlberg Kravis Roberts & Co. and Goldman Sachs Mount Kellett Capital Management, Proparco SA and International Finance Corporation Value (US$m) 212 150 120 110 96 66 59 56 51 50 Sector Infrastructure Travel and financial services Financial services Health care Retail and consumer products Health care Technology Pharmaceuticals Logistics Education Sources: VCCEdge and Ernst & Young research 2 Private equity roundup — India Transactions Analysis by deal size Figure 5. Trend of median PE deal size of announced PE deals Average deal size holds steady 16 15.0 The average deal size in Q2 2012 did not experience any significant change from the previous quarter. However, a year-on-year comparison indicates a sharp decline (30%) from the same period last year. While the small-size deals (below US$10m in value) have been consistent over last five quarters, large-size transactions (greater than US$50m in value) have dipped substantially. Even the number of mid-market deals (US$20m–US$50m) have also 12 11.1 11.2 10.0 10.0 10.0 10.0 9.1 8.2 8 7.1 6.2 4 been reduced by more than half from the level seen in Q2 2011, resulting in the decline in average deal size. Interestingly, the median deal size declined significantly in Q2 2012 (59% decline from US$15m in Q2 2011 and 45% from US$11.2m in Q1 2012). The decline reflects decreased big-deal activity but sustained VC activity. Figure 4. Trend of average PE deal size of announced PE deals 0 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 Sources: VCCEdge, AVCJ and Ernst & Young research Note: Only deals with disclosed values have been considered. Figure 6. Composition of total PE deal volume by PE deal size 140 50 40 30 24.4 35.4 33.6 32.3 28.5 23.7 22.2 23.2 21.1 22.0 22.5 120 16 100 16 80 27 60 21 40 25 38 27 9 9 10 18 15 21 13 15 15 27 9 13 7 20 17.3 20 43 43 10 0 Q2 2011 Q3 2011 45 43 45 Q4 2011 Q1 2012 Q2 2012 0 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 Less than US$10m Greaterthan US$50m US$10m–US$20m US$20m–US$50m Notdisclosed Sources: VCCEdge, AVCJ and Ernst & Young research Sources: VCCEdge, AVCJ and Ernst & Young research Note: Only deals with disclosed values have been considered. Q2 2012 3 Transactions (... continued) Analysis based on sector Figure 7. Select PE deals in RCP Infrastructure attracts highest amount of PE funding on the back of a large transaction in the renewable energy segment In Q2 2012, the infrastructure sector recorded the highest value of investments, accounting for 19% of total announced PE deal value. In the largest deal of the quarter, Morgan Stanley Infrastructure Partners invested US$212m in a wind energy developer, Continuum Energy. Other renewable energy producers and equipment companies such as Shalivahana Green Energy, ReGen Powertech and Vana Vidyut also raised PE funding during this quarter. Closely following infrastructure, the health care sector received US$206m in total PE investment and accounted for 12% of the Target ... - tailieumienphi.vn