Private equity firms are making bigger and bolder investments In India

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  • PE funds are now increasingly investing in buyouts, cutting bigger cheques and snapping up larger stakes in target companies.
  • In August, $1.6 billion worth of PE transactions took place across 50 deals with buyout deals doubling in value compared to August 2017.
  • The share of buyouts - which are typically marked by a controlling stake of more than 50% in a company - has steadily been rising.
For years, the story of private equity (PE) investing in India has been dominated by funding for early-stage startups and growth capital. PE funds are now increasingly investing in buyouts, cutting bigger cheques and snapping up larger stakes in target companies.

The share of buyouts - which are typically marked by a controlling stake of more than 50% in a company - has steadily been rising to reach $5.5 billion so far in 2018, which is more than double the amount seen last year and the highest in five years, Mint reported citing data from Venture Intelligence.

In August, $1.6 billion worth of PE transactions took place across 50 deals with buyout deals doubling in value compared to August 2017, according to an EY report.

KKR’s $530 million buyout of 60% stake in waste management company Ramky Enviro Engineers Ltd was the largest deal in August 2018. Other large buyout deals in 2018 include Kedaara Capital and Partners Group’s acquisition of Vishal Mega Mart for $734 million, and GIC and Abu Dhabi Investment Council’s $450 million in renewable energy company Greenko Energy Holdings.

“The Indian PE industry appears to have come of age, with PE backed platforms attracting marquee global investors like Berkshire Hathaway, which recently announced an investment of ~$300-US$400 million in Paytm,” Vivek Soni, Partner and National Leader Private Equity Services, EY, said in the EY report.

Key drivers

PE funds have had a good year in terms of fund-raising, increasing their ability to plough in more money in investments. As of the end of August, PE funds had over $40 billion in capital marked for India investments, according to the EY report.

Given the tough market to raise loans via traditional banks, many Indian companies are also increasingly turning towards private equity firms for alternative sources of capital and have been willing to forgo stakes in part due to the operational expertise these firms promise in running business in similar sectors.

In addition to available capital, PE firms also begun filling in the funding gap for many power and infrastructure companies that require large investments, or companies looking to divest ‘non-core’ divisions to shore up capital as they look to grow or turn around.

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