A new report published by Bain on dealmaking in India in 2011 shows that it was a standout year compared to previous years, although still not up to levels of the pre-financial crisis boomtime. Several trends are described in the report. Here are the top three summarized by Dealmarket Digest.
- More deals closed at lower valuations. Historically India high valuations have plagued PE investors because Indian entrepreneurs often looked at PE as funding of last resort and tended to ask for high prices for equity. The market is also fiercely competitive. But multiples fell showing that “promoters may have been more willing to acquiesce2 and that GPs are becoming more selective.
- A second trend in Indian PE is the big surge in early-stage deals focused on companies in the formative stages of growth. In 2011, 28 percent of the deals struck were with new companies founded within the last three years, up from a high of 25 percent in previous years. E-commerce companies led this trend, cornering about 40 percent of earlystage capital. There has been widespread euphoria as both PE and VC funds attempt to ride the growth of this nascent sector. Some of the larger deals included a USD200 million investment by SoftBank in InMobi, a global mobile advertising network, and a USD52 million investment in Snapdeal, an online deal discounts site, by IndoUS Venture Partners, Nexus Venture Partners and Bessemer Venture Partners through multiple rounds.
- The third trend in 2011 was the dramatic decline in the number of exits. Only 88 investments exited PE fund portfolios, a 30 percent decline in 2011. The decline was attributed to the lack of IPOs on the countries “depressed stock market”