Mumbai: Private equity (PE) and venture capital (VC) investments in the third quarter of 2018 fell 23%, compared with a year ago to $6.6 billion, according to consultancy EY’s Private Equity Deal Tracker. This is despite a 29% increase in the number of deals, from 138 to 178.
The decline in investments was primarily on account of fewer large deals valued greater than $100 million. The third quarter was also the most underperforming three-month period so far this calendar year, both in terms of investment and exits, said EY.
Excluding Walmart’s $16 billion acquisition of Flipkart, the quarter witnessed the least number of exits, or a decline of 71% year-on-year to $1.3 billion. The fall in exits was across most deal types, both in terms of value and volume.
However, exits via strategic sale were the highest ever at $16.1 billion (16 deals) and this was primarily on account of the $16 billion Flipkart-Walmart deal. Exits via secondary sale (to other PE funds) recorded $390 million (7 deals), which was 73% lower compared to the third quarter of 2017 by value.
Market volatility continued to impact open market deal activity as well as PE-backed IPOs. Q3 2018 recorded 14 deals worth $647 million against 32 deals worth $1.5 billion in Q3 2017. The IPO market recorded muted performance with just two PE-backed public floats, which include TA Associates selling its 11% stake in TCNS Clothing for $72 million, and Micro Ventures selling its stake in Credit Access Grameen Ltd for $72 million.
“PE/VC deal activity was strong in the first half of 2018. However, Q3 data and discussions with PE/VCs suggest investors are turning cautious. Macro headwinds like rising crude oil prices, depreciating rupee, talk of trade wars, etc., have increased uncertainty,” said Vivek Soni, partner and national leader, private equity services, EY.
The largest deals in the quarter included SoftBank Group Corp., Sequoia Capital, Lightspeed Ventures and others investing $1 billion in Oyo, besides KKR and Co.’s $530 million buyout of Ramky Enviro and AION-JSW’s $400 million buyout of Monnet Ispat.
PE/VC investments in realty, financial services, e-commerce and healthcare, fell over 50% year-on-year, said EY. Compared to last year, power and utilities, logistics and technology were the few sectors to show improvement in investments, though relatively fewer in number.
Soni said the liquidity crunch in the NBFC sector, as well as the upcoming 2019 Lok sabha elections, may influence investors to consider a wait and watch approach in the short-term.