According to the IVCA-EY monthly PE/VC roundup, August 2022 recorded investments worth US$2.2 billion across 83 deals, including five large deals worth US$972 million. Exits recorded US$3.1 billion across 25 deals in August 2022, the highest value of exits in 2022.
Vivek Soni, Partner and National Leader, Private Equity Services, EY said, "August 2022 recorded US$2.2 billion in PE/VC investments, 80% lower than the investments in August 2021. After remaining resilient for almost seven months amid global headwinds of tightening liquidity and rising inflation, Indian PE/VC investment flows for the first time have shown tepidness, reaching a nineteen-month low. Investors are being more circumspect in making investment decisions and taking longer to close deals as the competitive pressures witnessed in the previous year have ebbed and the cost of capital has gone up.
All deal segments recorded sharp declines on a y-o-y basis, in the range of 70%-90%, primarily due to the absence of large deals. August 2022 recorded just five large deals (deals of value greater than or equal to US$100 million) aggregating US$972 million, compared to 18 large deals worth US$9.2 billion in August 2021 and seven deals worth US$3.3 billion in July 2022.
However, PE/VC exits had a strong showing in August 2022, recording its best performance this year with 25 exits worth US$3.1 billion, a significant improvement over the previous month that recorded US$322 million across nine deals, on the back of a few large open market exits that saw KKR sell its 28% stake in Max Health for US$1.2 billion and Blackstone sell its 14% stake in Sona BLW for US$509 million.
Most sectors recorded a sharp decline in PE/VC investments in August 2022. The healthcare sector, however, bucked the trend to record a y-o-y increase of 485% in PE/VC investments. The healthcare sector in India has grown in favour among PE/VC funds in recent years, receiving almost US$9.5 billion in investments since 2017. The exit performance too has been good in this sector, with exits worth almost US$5.3 billion in the same period.
India continues to be one of the strongest economies globally, recording 13.5% growth in 1Q of FY23 and also overtaking the UK to become the fifth largest economy in the world. This, amid fears of the US already being in a recession and Europe too being on the brink of one, strengthens India's case as an investment destination. Nonetheless, in the connected global economy, India is feeling pressure due to the falling rupee and rise in inflation. The rising cost of capital is making fundraising difficult for many businesses and only those with a strong growth pathway and sustainable unit economics are seeing investor interest. Further, with the FED hardening its hawkish stance, the global financial markets have retracted most of their recent gains, dampening investor sentiment. We expect PE/VC investment activity to remain sluggish in the near term till valuation expectations correct."
At US$2.2 billion, PE/VC investments in August 2022 were the lowest in the past 19 months, 80% lower than the value recorded in August 2021 (US$11.2 billion) and 46% lower than investments in July 2022 (US$4.1 billion). In terms of the number of deals, August 2022 recorded 83 deals, 42% lower than August 2021 (143 deals) and 8% higher than deals in July 2022 (77 deals). The share of pure-play PE/VC investments (excluding real estate and infrastructure sectors) was also significantly lower on a y-o-y basis, at 68% in August 2022, compared to 88% in August 2021. The sharp drop in PE/VC investments in August 2022 was precipitated by the absence of large deals.
August 2022 recorded just five large deals (deals of value greater than or equal to US$100 million) aggregating US$972 million, compared to 18 large deals worth US$9.2 billion in August 2021 and seven deals worth US$3.3 billion in July 2022. While all deals in August 2022 were sub-US$500 million in value, August 2021 and July 2022 had six and two deals, respectively, of over US$500 million. OTTP's buyout of Sahyadri Hospitals Limited for ~US$300 million and NIIF's buyout of SP Jammu-Udhampur Highway for US$290 million were the largest deals in August 2022.
By deal type, start-up investments were the highest in August 2022, at US$953 million across 60 deals (US$3.1 billion in August 2021 across 94 deals), a 69% y-o-y decline. Buyouts were the second highest at US$943 million across six deals (US$4.8 billion across 11 deals in August 2021), an 80% y-o-y decline. Growth investments recorded the sharpest decline of them all at 91%, recording US$174 million across eight deals (17 deals worth US$1.0 billion in August 2021). Credit and PIPE (Private investments in public equity) investments recorded US$49 million and US$55 million respectively, each registering a decline of over 80% y-o-y.
Most sectors recorded a decline in PE/VC investments, except the healthcare sector which received ~US$427 million in investments across five deals (US$73 million across nine deals in August 2021), an almost 6-fold y-o-y increase. The next biggest sector was the infrastructure sector with ~US$427 million recorded across four deals (US$1 billion across six deals in August 2021), followed by the financial services sector with 20 deals worth US$385 million (33 deals worth US$2.5 billion in August 2021) and the technology sector with US$303 million invested across 18 deals (US$2.7 billion across 14 deals in August 2021).
Spotlight: Healthcare sector PE/VC deal trends
The healthcare sector in India has recorded US$9.5 billion in PE/VC investments since 2017, with more than 54% of the investments coming in the past two years.
This growth has largely been driven by investments into the provider care segment (single-specialty and multi-specialty hospitals and clinics) and health-tech platforms. These two segments account for more than 70% of all PE/VC investments in the healthcare sector, both in terms of value and volume. Again, more than 80% of these investments were in the form of start-up and growth funding.
The Indian healthcare sector is growing rapidly at a CAGR of around 22% since 2016 due to increasing coverage, breadth of services, expenditure by public and private players, and the growing demand for good quality healthcare. At the current rate, it is expected to reach US$372 billion in 2022. India, being a highly underpenetrated market, provides ample growth opportunities for companies and investors alike.
Since hospitals are largely capital-intensive businesses, they need a lot of upfront investment to grow, which makes the sector very suitable for PE/VC investors. Most PE/VC investments are focused on creating capacity and generating operating leverage through the levers of value creation, which in turn leads to healthy return multiples on exit. This playbook seems to be working very efficiently, as reflected in the exit figures.
The healthcare sector has recorded almost US$5.3 billion in exits since 2017, of which more than 70% have been in the provider care segment. In terms of the number of deals too, the provider care segment accounts for more than 50% of the deals since 2017.
Further, healthcare delivery globally and in India has witnessed a renewed focus on leveraging digital technology during the pandemic, resulting in a new era of digital innovation in the entire health ecosystem. Technology is empowering patients to take care of their health, real-time analytics is improving clinical decision making, and virtual monitoring tools are enabling anywhere, anytime health care. As a result, PE/VC interest in tech-enabled start-ups that address the different pain points in the healthcare delivery value chain is also growing.
August 2022 has been the best month for exits in 2022, recording 25 exits worth US$3.1 billion, a significant improvement over the previous month which recorded US$322 million across nine deals. Nonetheless, it was significantly lower compared to August 2021, which recorded exits worth US$7.4 billion across 42 deals.
The strong exit performance in August 2022 was on account of a few large open market exits which, included KKR selling its 28% stake in Max Health for US$1.2 billion and Blackstone selling its 14% stake in Sona BLW for US$509 million.
Secondary and strategic exits too saw some marquee deals being executed, recording US$584 million and US$687 million in aggregate value respectively.
August 2022 recorded total fundraises worth US$493 million by four funds, compared to US$1.9 billion raised in July 2021 across 11 funds. The largest fundraise in August 2022 was by Fundamentum India, which raised its second fund of US$227 million to invest in about 12 early growth-stage companies working in software-as-a-service (SaaS), healthcare, digital content and businesses that are building for non-metro cities.