2008 Reloaded: 10 Trends

By Shrija Agrawal & Madhav A. Chanchani (VCCircle.com)

VCCircle spots 10 key trends in the Indian private equity and M&A world. Read on.

More controlled transactions in future: There were 13 buyout transactions in 2008 as compared to 11 in 2007. The average deal size in India has also increased sharply by 125% to $36million in 2008 from about $16 million in 2005.

The prominent buyouts include New Silk Route Advisors acquiring Dawanay Day AV, Future Capital Holdings acquiring Centrum Direct and Centrum Wealth Managers, ILabs Capital picking up a 60% stake in Lehren Entertainment Pvt. Ltd, Navis picking up a 60% stake in Sah Petroleum Ltd and RFCL (an ICICI Venture company) completely buying out Alved Pharma and Foods Pvt. Ltd and the Medical diagnostic business of Godrej Industries Ltd.

As the credit crisis surfaces, a lot of family houses or entrepreneurs in India will shed their non-core assets and focus on their core strengths. "I see a huge potential and possibility for private equity in India to get to the next level- which is to get controlled transactions," said Archana Hingorani, Executive Director, IIML.

Money behind the money dries up: Institutional investors like the endowment funds or pension funds in the United States which are typically the limited partners to venture capital and private equity funds in India and are rationalising their allocations to PE funds.

Of about 84 funds from India which are out in the market to raise capital, only about 16 of them have been able to raise a total of $4.56 billion for the first 10 months of 2008. This is in contrast to 37 funds closed in 2007 which raised a total of $9.68 billion. In 2006, 36 funds raised $9.76 billion. Those out on the road for fund raising believe that even having a niche franchise like infrastructure or real estate doesn't help. Investors realise that the era of free flow of cheap capital is over and sources of capital would now want an increase in returns.

Venture funds look at growth, PIPEs - Indian venture investing has turned growth in 2008. Silicon Valley's blue chip venture capital firms such as Draper Fisher Jurvetson (DFJ) has moved beyond their pure early stage venture investing in India.

Tech-focused venture fund Norwest Venture Partners announced they would go sector agnostic in India, and would do growth and PIPE deals. The fund hired a banker from Goldman Sachs to invest in sectors like financial services to infrastructure. Mayfield Fund raised a $110 million India-dedicated fund earlier this month, which would also look at doing private equity type growth investments.