Sunday, December 2, 2007

Private Equity Trends

Figures from Venture Economics suggest that between 1980 and 2000, the amount of commitments of capital to funds managed by private equity firms increased from $2.3 billion to about $177 billion, cumulatively totalling $737 billion.

Industry size

According to estimates made by Thomson Financial, 2006 was a record year for private equity in both fundraising and investments. 684 PE funds raised a record $432 billion worldwide in 2006, led by buyout and real estate funds with $213 billion and $63 billion respectively. The total value of announced private equity buyout deals hit a record $700 billion in 2006, more than double the record set in 2005 and 20 times bigger than in 1996 (Metrics 2.0 2007).

According to one study, private equity assets under management are now nearing $400 billion in the US and just under $200 billion in Europe. Private equity expansion is also reportedly strong with aggregate deal value growing at 51 per cent annually from 2001 to 2005 in North America. The largest private equity firms, such as Blackstone, the Texas Pacific Group, the Carlyle group or Kohlberg Kravis Roberts & Co., each control companies with combined net revenues that exceed most US companies. And the large volumes of committed investor capital controlled by these funds and their substantial access to bank credit make them consider and execute deals that are huge and often unprecedented. One such recent deal is the Blackstone take over, after an intense battle with Vornado Realty Trust, of Equity Office Properties (the publicly traded owner of US office towers) for $39 billion. This is reportedly the largest leveraged buyout ever.

According to Emerging Markets Private Equity Association, fundraising for emerging market private equity surged in 2005 and 2006. Estimated at $3.4 billion and $5.8 billion in 2003 and 2004, the figure shot up to 22.1 billion in 2004 and $21.9 billion in the period to November 1 during 2006. Asia (excluding Japan, Australia and New Zealand) dominated the surge, with the figure rising from $2.2 billion and $2.8 billion in 2003 and 2004 to $15.4 billion during 2005 and $14.5 billion during the first ten months of 2006 (EM PE Quarterly Review, Volume II, Issue 4 2006).
Deal making in the region has also gained momentum. Dealogic estimates that the value of private equity deals in Asia-Pacific, excluding Japan, more than tripled to $26 billion in 2006 from $7 billion in 2005 (Metrics 2.0). Private equity buyouts have accounted for 7 per cent of regional merger and acquisition volume this year, up from 3 per cent in 2005 but still below the global figure of 17 per cent.


See the presentation IVCA

Risk Capital Foundation seems to be the first VC-PE firm to start operations in India in 1975. During 1976-1995, domestic financial institutions like Industrial Finance Corporation of India (IFCI), Industrial Development Bank of India (IDBI), and Industrial Credit and Investment Corporation of India (ICICI Bank) were some of the few private organizations that provided any Venture Capital or Private Equity capital, and the actual investment made by them was also negligible. During the period 1996-2000, several international and domestic VC and PE firms raised capital internationally and started investing tiny amounts in India. For example, the total investment in India made by these firms was only US $20 million in 1996 and US $80 million in 1997.

Even though PE-VC investment was only $20 million in 1996 and $80 million in 1997, the pace of growth was very healthy largely due to the worldwide dot-com boom. Unfortunately, because this growth was driven by of the dot-com bubble, it came crashing down soon after NASDAQ lost 60% of its value in 2000 – for example, the total number of deals declined from 280 in 2000 to 110 in 2001 – and this investment reached its low point both in the number of deals and total value in 2003.

From 2003 onwards, India’s economy started growing at 8% to 9% annually in real terms and at 13% to 15% in nominal terms (including inflation), and since some sectors (e.g., the services sector and the high-end manufacturing sector) started growing at 10% to 14% a year in real terms and 15% to 20% in nominal terms, VC-PE firms started investing again in 2004. For example, they invested US $1.65 billion in 2004, surpassing the investment of $1.16 billion in 2000 by 42%.

in late 2002 Oak Hill Capital and Financial Technology Ventures resorted to a buyout deal by backing a management bid to acquire Conseco's stake in Delhi-based EXL Services. Subsequently, in September 2003, ICICI Venture bought out the Tatas' controlling stake in Tata Infomedia. Three months later, CDC Capital Partners, the UK-based private equity investor, struck a Rs 75-crore deal to buy ICI India's industrial chemicals business in Gujarat. The private equity asset class had arrived in the country.
When private equity fund Warburg Pincus LLC announced in the middle of March 2005 that it had sold a chunk of its stake in India's top cellular player, Bharti Tele-Ventures Ltd, for $560 million (the largest stock trade in India's history), it was time to sit up. Warburg Pincus had with that deal made $1.1 billion by selling off two-thirds of its 18 per cent share in Bharti, reflecting a huge payoff on a $300 million investment made in stages between 1999 and 2001.
Big deals
Since then, there has been an increase in such activity with all the majors finding their way to the country. Growth has also been substantial. The total number of M&A deals struck in 2006 was estimated at 782 ($28.2 billion) compared with 467 ($18.3 million) in 2005 (Business Line, January 7). Of these, 302 involved private equity. Private equity investments also saw substantial growth in 2006. From $1.1 billion invested in 60 deals in 2004, private equity investments rose to $2 billion in 124 deals in 2005, and a remarkable $7.9 billion in 302 deals in 2006. This remarkable 287 per cent increase in the total value of private equity during 2006, points to a growing value in each deal. There were more than 29 deals valued at over $50 million as against 10 such in 2005. The average private equity investment size increased from $16.40 million in 2005 to $26.02 million in 2006.
2006 – PE/VC Trends
 US$7.5bn invested in 2006 across 299 deals.
 IT & ITES retained its status as the favorite industry
among PE investors, followed by manufacturing and
real estate.
 Largest PE deal was $900M LBO of Flextronics by
Kohlberg Kravis Roberts (KKR).
 M&A and IPO activity continued to remain strong.

2007 first half

Total number of deals: 162 with total amount invested at
~ US$5.6B

Some of the big deals included Kohlberg Kravis Roberts & Co's $900-million investment in Flextronics Software Systems; Providence Equity Partner's $400-million investment in Idea Cellular and Temasek Holdings Pte's $330-million investment in Tata Teleservices Ltd. Such deals are continuing in 2007 with Blackstone Group acquiring a 26 per cent stake in Ushodaya Enterprises Ltd, which publishes the Telugu newspaper Eenadu and owns television channels under the same name.
India has been a hot destination even according to Venture Intelligence, a firm tracking this market in India. Private equity investment in India rose by over 230 per cent in 2006, to $7.46 billion, up from $2.26 billion a year earlier. And the trend seems to be continuing. Private equity investments are estimated to have doubled in the January-March quarter with firms such as Goldman Sachs and 3i investing large sums in Indian companies. Private equity firms invested $2.5 billion in the first quarter of 2007, up from $1.27 billion a year earlier, according data recently released by Venture Intelligence. Private equity investment in India is expected to touch about $10 billion in 2007, from $7.46 billion in 2006 which was more than triple of $2.26 billion invested in 2005.
Venture Capital Investment in India reached $777 Million in 2007

Venture capitalists invested more than $777 million in 57 deals for entrepreneurial companies in India during the first three quarters of 2007, according to the Quarterly India Venture Capital Report published for the first time today by Dow Jones VentureOne and Ernst & Young. This was nearly five times the $158 million invested during the first nine months of 2006 and more than twice the annual investment record of $320 million set in 2005. The report covers venture capital investment specifically, which Dow Jones VentureOne defines as growth capital made available to entrepreneurial companies in exchange for ownership in the form of private securities. These investments are often seen as shorter-term and do not include private equity investments such as leveraged buyouts or mezzanine and debt financing. The report showed 54% of all venture deals in India were for companies in the Information Technology (IT) categories, accounting for more than $327 million worth of investment.

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