PE/VC investments in May 2023 record 44% y-o-y decline

• May 2023 recorded US$3.5 billion in PE/VC investments
• Pure play PE/VC investments in May 2023 recorded a 52% y-o-y decline in terms of value and 42% decline in terms of volume
• Real estate was the top sector in May 2023 with PE/VC investments of US$1.2 billion
• May 2023 recorded US$2.2 billion fundraises

Mumbai, 19 June 2023: According to the IVCA-EY monthly PE/VC roundup, May 2023 recorded investments worth US$3.5 billion across 71 deals, including 10 large deals worth US$2.7 billion. Exits were recorded at US$1.8 billion across 20 deals in May 2023.

Vivek Soni, Partner and National Leader, Private Equity Services, EY said, “May 2023 recorded US$3.5 billion in PE/VC investments, 44% lower than the investments in May 2022 and 52% lower than April 2023. The number of deals in May 2023 was lower by 42% y-o-y.

By deal type, growth investments were the highest in terms of value in May 2023 at US$1.9 billion across 17 deals, compared to US$2 billion invested across 19 deals in May 2022, a 4% decline y-o-y in value terms. Pureplay PE/VC investments at US$2 billion across 62 deals declined by 52% in terms of value and 42% in terms of volume on a y-o-y basis. Startup investments clocked US$529 million in investments across 41 deals, a 66% drop from May 2022 levels.

From a sector point of view, real estate was the top sector in May 2023, recording US$1.2 billion in PE/VC investments across seven deals (12 deals worth US$1.1 billion in May 2022). The technology sector was the second largest sector, with $864 million invested across 15 deals, a 159% increase over May 2022. 

On the strength of a few sizable exits, PE/VC exits experienced nearly 3x growth in May 2023 on a year-over-year basis. Strategic exits were the highest at US$638 million across four deals.

After a busy April, PE/VC investments in May 2023 were tepid, with fewer large deals. Investments in the real estate sector helped support the investment tally in May 2023. Despite a recovery of sorts being seen in tech sector indices and in some of the large global tech names, sentiment in India for tech sector investments has been lackluster and fundraising by Indian startups has been sluggish. Barring sectors like healthcare and financial services, overall, PE/VC deal flow is also slow. Exits too have been lower amid lengthening deal cycles and large bid-ask spreads. Despite the high level of dry powder and large fundraises over the past one-and-a-half years, most funds are circumspect with deployment and are focusing significant efforts on managing existing portfolios that are struggling with maintaining growth and margin improvement. The mismatch in valuations between buyers and sellers continues to remain the primary impediment to improved deal closure rates. Nonetheless, with India emerging as one of the fastest growing economies in the world, the medium- to long term outlook remains positive, and we expect India's PE/VC investments in 2023 to surpass the numbers recorded last year."

Investments

PE/VC investments in May 2023 recorded US$3.5 billion, 44% lower than PE/VC investments in May 2022 (US$6.3 billion) and 52% lower than April 2023. In terms of the number of deals, May 2023 recorded a 42% y-o-y decline and a 15% sequential increase. Pureplay PE/VC investments at US$2 billion across 62 deals declined by 52% in terms of value and 42% in terms of volume on a y-o-y basis.

May 2023 recorded 10 large deals (deals of value greater than US$100 million) aggregating US$2.7 billion, a 138% decline y-o-y in terms of value. The largest deal in May 2023 saw GIC invest US$700 million in a JV with Brookfield REIT for two large commercial assets totaling 6.5 million square feet.

By deal type, growth investments were the highest in terms of value in May 2023 at US$1.9 billion across 17 deals, compared to US$2 billion invested across 19 deals in May 2022, a 4% decline y-o-y in value terms. Buyouts were second highest, recording US$533 million across three deals in May 2023 compared to US$294 million recorded across three deals in May 2022, an 80% increase y-o-y in terms of value. Startup investments recorded US$529 million across 41 deals, compared to US$1.6 billion recorded across 37 deals in May 2022. Credit investments recorded seven deals worth US$465 million, compared to US$2 billion across 19 deals in May 2022.

From a sector point of view, real estate was the top sector in May 2023, on the back of a couple of large deals, recording US$1.2 billion in PE/VC investments across seven deals (12 deals worth US$1.1 billion in May 2022). Technology was the second largest sector on the back of a single large deal, with US$864 million recorded across 15 deals (21 deals worth US$334 million in May 2022). In May 2023, the technology sector recorded the highest value of PE/VC investments in the sector in the past seven months.

Spotlight: Real estate sector PE/VC investment trend

With rising interest rates, the attractiveness of growth-oriented businesses with high cash burn rates is waning, and investors are looking to deploy capital into cashflow generating businesses to get a better return on their investments. Also, the rise in inflation has exacerbated the need for large asset managers to increase their allocations towards inflation-hedging strategies. As a result, PE/VC investments in the real estate sector in India are surging and are close to all-time highs within the first five months of 2023.

PE/VC investments in the real estate sector in 2023 till date are just 15% shy of the all-time high recorded last year and as per our projections should cross 2x of the 2022 record by the time the year is over.

PE/VC investments in the real estate sector continue to be dominated by the commercial segment, accounting for more than 50% of the dollar value of investments. However, with the growth of e-commerce and the proliferation of the digital economy, new segments like logistics parks and data centers have found favor with PE/VC investors. Investment in these segments has grown over 20 times in the past five years, from US$92 million in 2018 to over US$2 billion in 2023. With the growth of e-commerce and the implementation of GST, the demand for logistics grew, which saw a lot of investments by PE funds in this segment post-2018.

Currently, data centers are seeing significant interest from PE funds, which are evolving as an alternate asset class for varying real estate portfolios. Hyperscale data centers are being developed by reputed Indian real estate developers in partnership with global operators and PE investors. Private equity's interest in data centers is largely about predictable cash flows. The largest PE deal in the real estate sector has been in the data center space in 2023, worth US$2 billion.

Globally, data centers are being viewed as long-term safe havens for investment, even during turbulent times, which is attracting interest from private equity.

As per PitchBook, 2022 was a record year for PE investment in data centers globally, with over US$42 billion invested.

It is also prompting the launch of dedicated funds for investments in data centers. Recently, Kotak launched a US$800 million data center fund.

India is a growing market for data centers thanks to rapid digitization and a government-led mandate to localize all data that is generated and processed in the country. The surge in internet users, the massive rise of startups, the fast adoption of cloud computing, and the government’s investment in the IT sector are some of the critical drivers of digital and economic growth.

According to a report by EY-Assocham, India’s data center market is projected to grow to US$8 billion by 2026 [1], which is likely to see significant participation from PE investors.

Exits

May 2023 recorded 20 exits worth US$1.8 billion, compared to US$511 million recorded in May 2022 across 23 deals and US$1.6 billion recorded across 15 deals in April 2023. Exits in May 2023 were propped up by a couple of large deals, including KKR’s sale of its renewable energy platform Virescent to Indigrid for US$488 million and Blackstone’s sale of its 30% stake in IBS software to Apax for US$450 million.

Strategic exits were the highest at US$638 million across four deals, followed by secondary exits with US$514 million recorded across six deals.

Fundraise

May 2023 recorded total fundraises of US$2.2 billion, compared to US$745 million raised in May 2022. The largest fundraise in May 2023 was by Multiples PE, which raised US$650 million for its fourth India dedicated fund with a targeted final close of US$1 billion.

Notes to Editors

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About IVCA

The Indian Private Equity & Venture Capital Association (IVCA), is the apex body promoting the Alternative Investment Funds (AIFs) in India and promotes stable, long-term capital flow (Private Equity (PE), Venture Capital (VC) and Angel Capital) in India.

With leading VC/ PE firms, institutional investors, banks, corporate advisers, accountants, lawyers and other service providers as members, it serves as a powerful platform for all stakeholders to interact with each other. Being the face of the Industry, it helps establish high standards of governance, ethics, business conduct and professional competence. With a prime motive to support the ecosystem, it facilitates contact with policy makers, research institutions, universities, trade associations and other relevant organizations. Thus, support entrepreneurial activity, innovation and job creation.