Canadian Pension Funds drive PE/VC deal activity in 1Q17: EY
25 April 2017
- March 2017 (with US$2.6 billion across 60 deals) records a strong increase of 52% in value and 31% in volume over March 2016
- PE/VC investments in 1Q17 valued at US$ 4.2 billion across 134 deals
- Telecom sector tops the charts in March 2017 and 1Q17
- Exits in March 2017 valued at US$550 million across 22 deals and 1Q17 records US$2 billion across 61 deals dominate open market operations
March 2017 reported deals worth US$2.6 billion across 60 deals, recording a strong increase of 52% in value and 31% in volume over March 2016. Compared to the previous month, while deal volume almost doubled, deal value grew by 6.5 times in March 2017. Deal activity had fallen to a three year low of US$400 million across 32 deals in February 2017. The growth this month was primarily driven by large PIPE deals by Canadian pension funds. The deal activity also picked up across other deal segments compared to relatively low in the previous month. From a sector perspective, telecom topped the charts due to the large KKR-CPPIB investment in Bharti-Infratel, followed by Financial Services which clocked US$693 million across 11 deals. E-commerce did not see any equity investment in March 2017 – there was only one US$4 million debt raise by Bigbasket.
In March 2017, with US$550 million across 22 deals, exits were lower by 59% in terms of value but 120% higher in terms of volume compared to March 2016. March 2016 had seen one of largest exits in India by a PE investor (KKR’s US$1.2 billion exit from Alliance Tire). Open market exits accounted for 70% of exits by value and 55% by volume. Financial Services dominated across sectors, accounting for 53% of the value of exits.
On a monthly basis, fund-raise activity in March 2017 was at its lowest across past seven months at US$106 million.
Commenting on the PE landscape, Mayank Rastogi, Partner and Leader for PE, EY says, “The two trends that characterized the quarter were the deal activity of the Canadian pension funds and the decline in E-commerce investments. The Canadian Pension funds have been actively pursuing deals in India for the last few quarters and that manifested in the high deal numbers in 1Q17. Their investments have a few common themes including their investments in companies who are market leaders in their sectors and have attained scale, companies with a high corporate governance record, most investments in partnership with other large PE investors, and lastly, the deal sizes are largely greater than US$100 to 150 million.” “E-commerce sector is undergoing a lot of churn and most businesses are in the recalibration mode, leading to low deal activity,” he added.
From a quarterly perspective, PE/VC investments declined marginally on a Y-o-Y basis during the first quarter (January-March) of 2017. Investments declined by 2% in value terms (US$ 4.2 billion vs US$ 4.3 billion in 1Q16) and 8% in terms of volume (134 deals vs 146 deals in 1Q16). However, compared to 4Q16, investments declined 18% by value and 15% by volume. All segments other than PIPE investments declined in both value and volume. PIPE investments overtook growth capital deals in 1Q17, last witnessed in 2Q13, mainly on account of the large US$952 million investment in Bharti Infratel by CPPIB along with KKR for a 10.3% stake. Five out of the seven investments with value greater than US$100 million in 2017 were PIPE investments.
Investments by the Canadian pension funds contributed to almost a third of the total investment value recorded in 1Q17.
These include CPPIB’s US$720 million investment in Global Logic for a 48% stake, US$342 million investment in Kotak Mahindra Bank by CDPQ and CPPIB for a 1.5% stake, and US$302 million invested in Bharti Infratel for a 3.3% stake (KKR was the other investor acquiring 7% stake in the deal).
From a sector perspective, Telecom dominated with US$952 million KKR-CPPIB investment in Bharti-Infratel. Except for the technology sector, which recorded US$907 million across 31 deals in 1Q17, investments across all other prominent sectors like financial services, real estate, and E-commerce declined. E-commerce recorded the lowest quarterly deal value and volume since 3Q13. Similarly, Real Estate recorded the lowest deal value and volume since 1Q14.
With regard to the exits in the quarter, there was a marginal 2% Y-o-Y decline in deal value. However, in volume terms there was a 45% growth. Compared to 4Q16, exits reported an increase in both value and volume of 37% and 3% respectively. Exits through open market recorded their best performance in over five years at US$890 million across 30 deals and emerged as the preferred mode of exit in 1Q17. Second in line were secondary exits with US$851 million across 9 deals, mainly contributed by US$720 million partial divestment of Global Logic by Apax to CPPIB. There were fewer strategic exits in 1Q17 (US$43 million across 11 deals) compared to 1Q16 (US$1.5 billion across 16 deals. There were two PE backed IPOs in 1Q17 (BSE and CL Educate) vs four in 1Q16. Financial Services (US$522 million, 14 deals) and Technology (US$720 million, 5 deals) were top sectors witnessing exit activity followed by Healthcare (US$93 million, 8 deals) and Real Estate (US$184 million, 6 deals).
First quarter of 2017 witnessed US$1.3 billion in fund raise, a 38% decline compared to 1Q16. 1Q17 saw new fund raise plan announcements of over US$1.6 billion. However, these were much smaller compared to announcements of US$5.7 billion in 1Q16, large proportion of which were by the Government of India.
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