A round-up of the investment activity in India with Preeti Nambiar, CEO of Baanyan Tree
Words by: Preeti Nambiar Image from: Enterprise Innovation
Private equity in South India
The last year has witnessed some tumultuous times, with events at the national and global stage deeply impacting the investment climate, business performance and investment exits.
The verdict is still out on how events such as the US Presidential elections, demonetization, among others, have affected the investment climate. However, several big ticket deals and new funds have been announced recently indicating certain resilience in local business and investor attitude.
In terms of region, South India accounts for the largest volume of investment activity over the last year – 38% of investment volume in terms of number of deals. However, in terms of actual value, South India accounts for only 33% of the share, coming in second to the Western region of India. The western region of India attracted 46% of the investments made (in value terms) even though the region accounts for only 31% of deal volume. An amount of $5 billion was invested across 233 investments in the South India region, in 2016.
High deal volume and comparatively lower deal value figures in the region is indicative of the investor preference for smaller average deal size compared to other regions. And given the high deal volume, it is evident that investors are looking to South India for good quality seed and early stage investments. This also indicates a higher and lucrative economic activity in the startups, small and mid-size company segment in the region. The small and growth company segments are usually perceived as higher risk, and more unorganized as an industry. Hence, the investor focus on the startup and growth segment indicates a perception of lower risk attached to doing business in South India.
In terms of industry, the South region accounts for the highest IT investments in terms of value as well as deal volume. Investment capital worth $1.85 billion was invested across 140 deals in 2016, in the IT & ITES sector in South India. Bangalore accounts for the largest share of the investment pie.
Exit activity in terms of overall volume, across all sectors, has been similar to the previous year (in 2015), but much lower in terms of value. Exit volume, however, indicate a robust market and hence lower risk and a more viable environment for investment.
Ms. Preeti Nambiar is the Founder & CEO Baanyan Tree. Ms. Nambiar is an Investment Banker specializing in Private Equity and Developing Markets. Baanyan Tree works with firms on Corporate Strategy and Turnkey growth projects
In terms of the exits, the leagues of top exits in the country included a fair representation from South India and also accounted for the biggest exits in terms of profitability. The IT/ ITES segment companies based in South Indian featured in the most profitable exits league table. Most profitable exit deals for the year 2016 in the segment included Tiger Global, Accel Capital and Google Capitals exit from CommonFloor via the strategic sale to Quikr at $120 million.
Of the top ten exits in 2016, South Indian companies account for 4, including two IPOs. The deals include – Aarin Capitals exit from Byjus Classes (education sector) via secondary sale, at 10x return multiple, with a 3 year holding period; IFC’s exit from Cholamandalam Finance (BFSI sector) via public markets at 7.3x return multiple, with a 7 year holding period; Aavishkar Goodwell’s exit from Equitas Holdings (BFSI Sector) via IPO at 13.5x return multiple, with a 8 year holding period; Unitus’ exit from Ujjivan Financial Services (BFSI sector) via IPO at 7.5x, with a 10 year holding period.
South Indian companies also accounted for a prominent share of the Investments and exit activity in the Indian private equity field. Of greater relevance is the fact that investor focus in the region is trained at small deal size, small and mid- segment companies instead of the usual big ticket, bigger companies more common in the other regions. This indicates the positive investor perception of lower risk and organized industry and practices.
From an entrepreneur’s point of view, this indicates that availability of good quality institutional funds at a much earlier stage of their growth. With proactive state and government agencies pushing policies and funds to promote startups, companies in the region can look forward to a positive funding and support ecosystem.
-Preeti Nambiar
Founder & CEO
Baanyan Tree