India Private Equity Investments Off to a Slow Start in 2016: VCCEdge Q1 CY2016 Deals Report

319 PE deals worth $2.3 billion, down 8%, recorded in the first quarter of CY16

Slowdown attributed to drastic 80% fall in Venture Capital funding of deals in value terms

Exit Valuations dip to a 15-quarter low

VCCEdge, the financial research platform of The VCCircle Network, India’s leading publisher of startup and private equity news, data and information, and part of global diversified media, news, education and information services group, News Corp, has today released the key findings of its Quarterly Deals Report for the quarter ending March 2016.

This data-driven overview of deals in the private equity, mergers and acquisitions and public offerings space with sector and region-wise analysis, the full report will be released next week, has indicated slowing pace of PE investments in the first quarter of 2016 after a dream run in 2015.

“The report confirms emerging trends mapped by VCCircle, which pointed to waning investor interest for ecommerce start-ups and shows a general consensus among private equity and venture capital investors that valuations of India’s startupswill need to drop as investments by limited partners will moderate,” said Nita Kapoor, CEO of VCCircle Network. “Angel and seed investments and M&A deal value, up 86%, however, remain very positive signals in a difficult start to the year.”

Highlights:

VC funding slows down PE momentum

· Venture capital funding, which hit a peak during the year-ago quarter, witnessed a drastic decline with 88 deals being recorded against the 138 deals recorded during Q1 CY15. Deal value declined to $334 million in Q1 CY15, compared to $1.8 billion seen in the corresponding quarter last year. The share of venture capital funding, by value, dipped by about half to 14.6% in Q1 CY16.

· Private equity inflow of $2.3 billion in the first three months of 2016 is 48.8% lower than the inflow of $4.5 billion in Q1 of 2015. On a sequential basis, when compared with Q4 CY15, the deal inflow is down 50.7%, indicating a lean period in deal activity, which had hit a peak in Q3 CY15.

· Deal-making slipped 8% to 319 deals during the three-month period under review as compared with the corresponding period of 2015. The slide in deal volume was much higher at 19.4% on a sequential basis when compared with Q4 CY15.

· Mean deal amount slipped to $11.9 million in Q1 CY16, as compared with $15 million a year ago in Q1 CY15. Median deal figure was also down to $0.97 million in Q1CY15, as compared with $1.5 million a year ago.

· Angel and seed investments grew in volume but slowed in value terms. Deal volume was up 36.2% to 188 deals in Q1CY16 from 138 deals a year ago. Deal value slipped 32.5% to $58 million during the period under review.

· Top 10 Deals constituted 66.9% of the total private equity capital invested in Q1 CY16.

Lower Exit-Valuations

· Exits, on the other hand, were lackluster, dipping to a 15-quarter low in value terms. Deal value slipped by 70% from $1.7 billion in Q1CY15 to $508 million in Q1CY16. Deal volume trimmed by more than half from 89 deals to 39 deals during the period under review.

· Equity markets weren’t supportive during the quarter. Some 27 companies raised $499 million during Q1 CY16, as compared to 30 companies that raised $1.2 billion in Q1 CY15.

A Mixed Bag for M&A Deals

· 211 M&A deals were struck during the quarter worth $8.7 billion. Compared to Q1 CY15, deal volume declined 14.5% while deal value increased by a healthy 85.7%.

· Deal value picked up for domestic and outbound M&A deals, while Inbound deals slipped significantly by 71.1% during the quarter. Deal volume slipped the highest for inbound deals during the quarter, witnessing a decline of 47.6% to 22 deals.

Other Highlights:

· Financials, Industrials, consumer discretionary, information technology, and healthcare were the Top 5 sectors to attract significant private equity capital during the quarter.

· India’s financial capital, Mumbai, continues to be a hotbed for M&A while Bengaluru outpaced Mumbai for private equity activity in the country, followed by Delhi and Gurgaon.

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