30 December 2011

PE Investments Saw A Downfall In 2011

It was predicted that 2011 will see smooth exits from its investments since most portfolio investments will ripe. Around 800 deals made through 2007 with an investment of around $15 billion in PE fund portfolios were expected to exit in 2011. But due to high inflation and political uncertainty, the Indian PE market saw a downfall as it was compared to the predictions. This uncertainty will make it difficult for the investing firms to exit with good returns in 2012. But it will also provide a good thrust to these firms to pump funds in fresh investments and expect bigger valuations.
PE investment

Prequin data, a research firm, said that 170 exits were completed in the fourth quarter with a total value of $28.4 billion, which is the lowest quarterly total since the first quarter of 2010.  About a third of the PE investments are currently losing money. India’s economic growth has propelled PE investments in the country to $8.2 billion in 2010 from $470 million in 2003.But political uncertainty and high inflation became hindrance in this growth. However, the Indian environment offers a greater diversity of exit options, such as secondary sales, M&A and buybacks that are an important source of liquidity for underperforming investments.

About 68 percent of the share of private equity funds targeted at emerging markets goes to faster growth countries like India and China, says a study by the Emerging Markets Private Equity Association. Moreover, India and China accounts for 54 percent of the total number of completed PE transactions in the first half of 2011.

India saw PE deals worth $7.7 billion this year with 347 transactions announced during the period, which is 24 percent jump vis-a-vis the corresponding period last year. The highest PE investment was made in the Real Estate segment with $1,700 million during 2011. Power sector topped the chart during the first six months of the year was ranked thrid with $4892 million investments behind automotive sector that parked around $1006 million PE funding.

The exit value upto September was less than half of the PE exit value witnessed in 2010. 2007, 2009 and 2010 have generated the highest volume of exits and this shows the close correlation between a vibrant capital market and PE Exit, reports KPMG study. The PE investments in India touched $6.3 billion in the first six months of 2011 with the IT and ITeS sector attracting the maximum number of deals. In April – June quarter, $2,916 million was invested across 112 deals while the previous quarter saw an infusion of $3,363 million across 91 deals reports Venture Intelligence, a research service focused on PE and M&A transaction in India.