Private equity and venture capital investments touched a record high during 2015, with investors striking larger deals in the start-ups and technology space.
TRENDS TO WATCH
Stressed asset sales
With banks trying to clean up their books and companies looking for ways to reduce debt, expect stressed asset sales to pick up in 2016. In some cases, companies are trying and sell some of their operational assets to financiers in sectors such as roads. Banks will also try and offload assets where they have converted debt into equity. Stressed asset funds, private equity funds and asset reconstruction companies may emerge as likely buyers.
As start-ups struggle to raise larger rounds of funding and capital becomes less easily available, consolidation will continue with larger peers or with brick and mortar firms that are seeking to add technology capabilities. Venture capital funds will also be looking at merging their existing portfolio companies with better performing ones to secure exits.
Most private equity funds are now seeking to do majority control or buyout deals, which give them greater control over their investee companies. It also allows for smoother exits. Control deals in 2015 crossed the $2 billion mark. With funds expressing their preference for such deals, the trend may build.
In 2015, more than 21 firms managed to tap the primary markets. Many of these firms were backed by private equity firms that were looking to exit. If the markets remain conducive, expect exits to remain strong. This, in turn, will help funds raise new capital for fresh investments.
Direct deals by LPs
Globally limited partners, or LPs, are consolidating the number of funds or general partners (GPs) they invest through. Many are doing deals directly. Kuwait Investment Authority, Abu Dhabi Investment Authority, Canada Pension Plan Investment Board (CPPIB) and Public Sector Pension Investment Board (PSP Investments) are among the limited partners investing through direct deals.
KKR & Co. is set to raise its second alternative investment fund for India to offer credit solutions to domestic firms. The demand for non-bank sources of funding is on the rise and KKR India is well positioned to take advantage of this. Apart from its PE business, KKR India has both a non-banking financial company (NBFC) and a real estate NBFC through which it offers structured loans.
The Menlo Park, California-based fund is raising its fifth India dedicated fund to invest in growth-stage companies. It will bring home nearly $800 million from its investors. Sequoia has been the most active fund during 2015 investing across 51 deals to date especially in sectors like hyper local delivery, pharmaceuticals, Internet retail and application software.
The firm launched its fund raising programme in November and is expected to close its $650 million fund raise by June 2016. One of the most successful funds from India, ChrysCapital has managed to return $4 billion to its investors.
Multiples Alternate Asset Management
The Renuka Ramnath-led Multiples will start deploying its $615 million second fund in 2016. Multiples largely invested in growth deals from its maiden fund. The fund is now looking out for deals in the financial services, consumer and healthcare sectors.
Deal maker Rajeev Gupta is the man to watch out for in the investment banking space. Gupta’s Arpwood Capital advised on one of the largest cement deals this year when Lafarge SA sold two of its cement units in India to Kolkata-based Birla Corp. Ltd. Apart from deal advisory, Arpwood Partners, the PE business unit, invested alongside Centrebridge Partners to acquire stake in Senvion SE. Arpwood Partners invested Rs.700 crore in the deal which was pegged at Rs.7,000 crore.