About 77% of private equity players in the country expect an increase in investment momentum in the coming 12 months, according to a survey by Deloitte Touche Tohmatsu India.
And the deals will be simpler. The report said 87% of respondents rated 'structured development capital' (in essence, a return to the traditional way of structuring development capital deals, using less leverage and a simplification of the structure) to be the key focus area for investment this fiscal.
Following this are transactions in the venture capital, pre-IPO and buyout space, in that order of priority.
“Some funds have committed a lot of private investments in public enterprise (PIPE) deals since 2007 and have suffered mark-to-market losses. We'll increasingly see a return to basics — back to structured development capital deals. However, PIPEs will continue to see activity given the lack of sizable development capital deals,” Avinash Gupta, head-financial advisory services for Deloitte Touche Tohmatsu India, said in the report.
The report outlined the education, construction and infrastructure sectors as showing promising signs for PEs. Infrastructure-related sectors or those having domestic consumption themes will also attract significant investments. “On the latter, the focus will be urban rather than rural given that poor monsoon will impact consumption patterns in the rural areas,” Gupta said.
Neelabh Dubey, vice-president-investment banking at One Life Corporate Advisory, said the Indian infrastructure will be a favoured opportunity for the next five years. “This is primarily due to planned infrastructure investment of about $450 billion in some key sectors such as roadways, civil aviation, ports, railways, telecom and power,” she said.
However, the re-bound of markets is likely to put a spanner in deal-making, as valuations appear to be going for a toss. Adding to the challenge is government intervention. “Regulatory issues are certainly an area of concern for us,” said a top official from a global PE firm, requesting anonymity.
Deals expected to conclude over the coming year will continue to be growth focused. Average deal sizes are also expected to rise. “Banking, financial services & insurance (BFSI) will be another focus area this year. And yes, the average deal size will see a significant increase from last year,” said Niren Shah, MD, Norwest Venture Partners.
The report said foreign fund managers will be the most active investor group, but the introduction of a new tax code could reduce the number of foreign players entering the region.
Source: Today News