Y-o-Y PE/VC investments in 1Q22 increased by 54% to US$15.5 billion; Exits declined by 16% to US$4 billion: IVCA-EY report

• VC/start-up investments were the highest in terms of value in 1Q22 at US$7.7 billion across 255 deals
• Five sectors recorded more than US$ 1 billion in investments in 1Q22 with financial services receiving the highest value of investments of US$3.2 billion

Mumbai, 13 April 2022 (GNI): According to the IVCA-EY monthly PE/VC roundup, 1Q22 recorded investments worth US$15.5 billion across 360 deals, including 45 large deals worth US$10.1 billion. Exits recorded US$4 billion across 53 deals in 1Q22, including nine secondary exits worth US$2 billion.

Vivek Soni, Partner and National Leader Private Equity Services, EY said, “1Q22 recorded US$15.5 billion in PE/VC investments, 54% higher than the investments in 1Q21. Start-up investments continued to drive the momentum in PE/VC investments in 1Q2022 with a 170% y-o-y increase, accounting for more than 50% of all PE/VC investments during the quarter.

Despite the global geopolitical tensions, PE/VC investments in India have maintained a steady monthly run-rate of over US$4.5 billion. While start-up investments have surged in 1Q22 recording some of the largest deals during the quarter in Logitech (ElasticRun), crypto (Polygon) and hyperlocal delivery (Swiggy), buyouts have been the lowest in the past four quarters, recording a little over US$2 billion across 15 deals.

PE/VC exits recorded the lowest value in the past five quarters at US$4 billion in the absence of large strategic and secondary deals. Moreover, a drought in PE-backed IPOs has further dampened the value of PE/VC exits. Nonetheless, the past three months have recorded a rising trend in the number of exits despite the absence of PE-backed IPOs. Also, 1Q22 had many strategic exits where the deal values were not disclosed, thereby suppressing the reported aggregate exit value.

Financial services received the highest amount of PE/VC investments at over US$3 billion in 1Q22, followed by e-commerce and technology sectors, both of which received over US$2.5 billion in PE/VC investments. PE/VC investments in logistics and education recorded the largest increase in % terms of over 100%.

While India’s position as an attractive destination for PE/VC investments is expected to remain strong in 2022 given its high growth and macroeconomic and policy stability, the continuing geopolitical tensions, rising inflation, quantitative tightening by the US FED and inversion in the US yield curve are potential downside risks, making investors circumspect. We continue to remain ‘cautiously optimistic’ about 2022 PE/VC investment and exit activity exceeding the 2021 record highs.”

Investments: PE/VC investments in 1Q22 were 54% higher than of 1Q21 but 36% lower than 4Q21 (US$15.5 billion in 1Q22 vs. US$10 billion in 1Q21 and US$24.4 billion in 4Q21). In terms of the number of deals, 1Q22 recorded an increase of over 30% compared to 1Q21 and 7% compared to 4Q21 (360 deals in 1Q22 vs. 276 deals in 1Q21 and 337 deals in 4Q21). The increase in PE/VC investments in 1Q22 has been driven by a significant growth in start-up investments (US$7.7 billion) that have recorded a 170% increase in value compared to 1Q21 (US$2.8 billion), accounting for more than 50% of all PE/VC investments in 1Q22.

1Q22 also recorded significant growth in value and number of large deals (value greater than US$100m) accounting for 65% of all deals by value. 1Q22 recorded 45 large deals aggregating to US$10.1 billion compared to 30 large deals aggregating to US$6.7 billion in 1Q21 and 53 large deals aggregating US$19.5 billion in 4Q21. The largest deals in 1Q22 saw Baring PE Asia buyout IGT Solutions Private Limited from AION for over US$800 million, followed by US$700 million invested in Swiggy by a group of investors including Prosus Ventures, Qatar Investment Authority and others.

Pure play PE/VC investments (i.e., excluding investments in real estate and infrastructure) recorded US$13.9 billion, 77% higher than the value recorded in 1Q21 (US$7.8 billion) and 36% lower than the value recorded in 4Q21 (US$21.6 billion) which accounted for 90% of all PE/VC investments in 1Q21.

Start-up investments were the highest in 1Q22 with US$7.7 billion invested across 255 deals (US$2.8 billion across 175 deals in 1Q21 and US$9.6 billion across 233 deals in 4Q21), the third-highest quarterly value of start-up investments and accounting for more than 50% of total PE/VC investments in 1Q22. In terms of the number of deals, start-up investments accounted for 71% of all deals in 1Q22.

Growth investments were next in line recording US$3.6 billion across 50 deals in 1Q22 compared to US$4.5 billion across 57 deals in 1Q21 and US$4.3 billion across 45 deals in 4Q21. This was followed by buyouts worth US$2 billion across 16 deals (US$1.6 billion across 11 deals in 1Q21 and US$7.7 billion across 12 deals in 4Q21).

PIPE investments recorded US$1 billion across 14 deals in 1Q22 (US$609 million across 12 deals in 1Q21 and US$2 billion across 24 deals in 4Q21). Credit investments recorded US$1.2 billion in 1Q22 compared to US$480 million in 1Q21 and US$761 million in 4Q21.

Five sectors recorded more than US$ 1 billion in investments in 1Q22 with financial services receiving the highest value of investments of US$3.2 billion across 71 deals, followed by the e-commerce sector which recorded US$2.7 billion across 47 deals, and the technology sector with US$2.6 billion invested across 59 deals.

Spotlight: PE/VC investment trend in education sector: PE/VC investments in the education sector have been on a sharp uptrend over the past three years. Investments in the education sector since 2020 account for more than 70% of all PE/VC investments in the sector since 2010.

PE/VC investments in the education sector began to surge after 2018, however, the pandemic accelerated this trend in 2020 and 2021 with schools and colleges having to go online and students adapting to online modes of pedagogy.

Three start-ups – BYJU’s, Eruditus and Unacademy have received more than 50% of all PE/VC investments in the sector till date and seven companies have achieved unicorn status which includes Aakash, BYJU’s, Unacademy, Eruditus, upGrad, LEAD School and Vedantu.

Having done five large rounds of over US$400 million in recent years, BYJU’s with a US$22 billion valuation, is the second-largest unicorn in India behind Flipkart.

Eruditus has received the highest investment in a single round of US$650 million which saw participation from CPPIB, Softbank, Prosus, Sequoia, and others.

General Atlantic, CPPIB, Tiger Global, KKR, Softbank, Sequoia, and Blackstone have been the most active investors in terms of capital deployed. In terms of the number of investments, Sequoia has the largest number of investments in the education sector with investments in 14 companies.

The sector is now witnessing consolidation with some of the bigger players going on an acquisition spree. The sector has recorded 43 bolt-on acquisitions worth US$3 billion since 2015 of which 15 deals worth US$2.4 billion happened in 2021 driven by acquisitions by BYJU’s. Of the 43 bolt-on deals till date, 15 were by BYJU’s and seven by Unacademy. The BYJU’s – Aakash deal was the largest bolt-on deal in the sector, worth US$1 billion.

Exits: 1Q22 recorded exits worth US$4 billion, 16% lower than the value recorded in 1Q21 (US$4.8 billion) and 58% lower compared to 4Q21 (US$9.6 billion). In terms of numbers, 1Q22 recorded 53 exits, 16% lower than the number of exits in 1Q21 (62 exits) and 25% lower compared to 4Q21 (71 exits).

Exits via secondary sale were the highest with US$2 billion recorded across nine deals, accounting for 50% of all exits by value in 1Q22 (US$928 million across 16 deals in 1Q21) followed by 11 exits worth US$1.9 billion via open market sales (US$1.1 billion across 22 deals in 1Q21). Strategic exits were the highest in terms of numbers in 1Q22 with 32 deals, however, the deal values were undisclosed on most deals (disclosed value of US$157 million across five deals in 1Q22). 1Q22 had just one PE-backed IPO compared to 10 in 1Q21 and 15 in 4Q21.

The largest exits in 1Q22 include CPPIB selling its 2% stake in Kotak Mahindra Bank for US$893 million followed by the US$800 million exit from IGT Solutions by AION.

From a sector perspective, the financial services sector recorded the highest value of exits in 1Q22 (US$1.5 billion across 11 deals) followed by exits worth US$1.1 billion across 12 deals in the technology sector.

Fundraise: 1Q22 saw US$4.6 billion in fundraises compared to US$1.7 billion raised in 1Q21 and US$1.6 billion raised in 4Q21. The largest India dedicated fund outlay in 1Q22 saw Japan-based Mitsubishi UFJ Financial Group’s banking subsidiary MUFG Bank announce an allocation of US$300 million to its fund named ‘Ganesha’ for investments in Indian start-ups.

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About IVCA: The Indian Private Equity & Venture Capital Association (IVCA), is the apex body promoting the Alternative Investment Funds (AIFs) in India and promotes stable, long-term capital flow (Private Equity (PE), Venture Capital (VC) and Angel Capital) in India.

With leading VC/ PE firms, institutional investors, banks, corporate advisers, accountants, lawyers and other service providers as members, it serves as a powerful platform for all stakeholders to interact with each other. Being the face of the Industry, it helps establish high standards of governance, ethics, business conduct and professional competence. With a prime motive to support the ecosystem, it facilitates contact with policy makers, research institutions, universities, trade associations and other relevant organizations. Thus, support entrepreneurial activity, innovation and job creation.ends