Private Equity Fund raising shows no signs of slowing in 2018

Year 2017 went down as one of strongest years for Private Equity funds and VC investments.
 
A trend expected to carry forward in 2018 will be further increases in fund sizes for most PE funds and funds continuing to chase large strategic deals. The other key trend noted is the increase in dilution of the management stake by promoters. We continue to see change and willingness on part of the promoters to dilute larger stakes which is a significant shift from the previous years.  
 
The Indian private equity market saw a large number of funds close this past year. However, 2018 seems to be poised for topping the previous year figures as more than 20 India based funds have in principle secured and closed cumulative fund raising of approximately USD 3 Billion. Additionally, more than 80 funds in the process of roadshows to raise approximately USD 15 Billion.

PE & VC investors have pumped in a record $24 billion through approximately 500+ deals in 2017 viz-a-viz $16 billion through approximately 700+ deals in 2016. Private Equity funds and VC’s witnessed higher number of deals in 2016 however the cumulative investment pool was significantly higher in 2017. Year 2015 was recorded as the previous highest investment year with $18 billion being invested through approximately 800+ deals.

Other key indicators noted were increase in the deal sizes, increase in fund sizes, positive momentum in large-ticket deals such as Bain Capital AXIS Bank deal or the SoftBank Flipkart deal and successful exits in the primary markets for private equity funds which contributed in a strong way to the boom since traditionally in the past few years most of the deal flow was in the SME / MSME segments where average deal sizes were smaller. 2017 turned out to be a year of some very key large ticket deals.
 
The above trends seem very positive and Investors are cautiously optimistic in 2018 provided the valuations of businesses are realistic. Sectors such as Road Infrastructure, Consumer Lending, FinTech, Healthcare, Consumer Goods and Disruptive Technologies will continue to attract strong investment. We see a lot of positive activity around IPOs in 2018 specifically in the financial sector where NBFCs could go the IPO route. M&A will also see activity in 2018 for instance the potential Capital First IDFC Bank merger.  M&A will pick up given the amendments to the insolvency and bankruptcy codes recently passed by the parliament.

Global private equity funds and strategic investors are preparing themselves  with Rs 50,000 – 60,000 crore which will be needed to buy into 10-12 large companies that are undergoing insolvency proceedings in the National Company Law Tribunal.

However, “One Size Doesn’t Fit All”, Private Equity investments aren’t for everyone ! You have to be ready to answer critical questions or have a clear enough vision to answer the following questions - Are you ready for dilution of your ownership stake? Which could require larger stake offerings at times; Are you willing to part with management control or share control? And last but not the least, what is your definition of Value? Some promoters and business owners often have a different definition of value with a relatively longer-term outlook on value creation vs walking down the path of immediate disruptive strategic changes in the form of disruptive board governance, strategic executive leadership changes, shorter cycles of performance management, changes to compensation philosophy and changes to the operating environment.
 
Private Equity Investors while holding immense value for employee and customer relationships have a very targeted time bound value creation and value maximization plan.
 
- By Anuj Dhawan, Founder and Managing Partner, Cognitive Talent Partners LLP

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About the author: Anuj Dhawan is the Founder & Managing Partner of Cognitive Talent Partners LLP, a retained global cross border executive search firm with offices in Dallas, Silicon Valley, Philippines & India. The firm as a strategic preferred executive search partner to global funds offers a compelling advantage in the executive search industry given its private equity executive search track record coupled with strong promoter relationships within India and globally.

Dhawan brings two decades of deep expertise in partnering with some of the most powerful Global Private Equity Funds, Domestic Funds and Portfolio companies towards appointing Board Members, CEO’s and diverse executive leadership teams to enable funds maximize the value of their portfolio investments.

Cognitive Talent Partners has built a strong reputation of helping companies across Consumer Finance, FinTech, Engineering Services, Disruptive Technologies, Banking, Insurance, Healthcare, Infrastructure, Retail & Consumer sectors access attract the finest global and local talent pools across countries.

Since launching Cognitive Talent Partners in April 2017, the firm has seen rapid success and has established offices in the United States, Asia and with a soon to follow office in Europe.

Dhawan is also an angel investor in a Seattle based healthcare IOT business & FinTech companies.