Dealtracker. Providing you with M&A and Private Equity deal insights ANNUAL EDITION 2015

Transcription

1 Dealtracker Providing you with M&A and Private Equity deal insights TH ANNUAL EDITION 2015

2 Foreword Harish HV Partner Grant Thornton India LLP Welcome to the 11th edition of the annual Dealtracker, the annual publication which captures and analyses the M&A and PE deal scenario in India. We would like to thank our readers for their continued support and interest, which has made the Dealtracker one of the prime sources of information relating to M&A and PE deals in the country. We endeavor to bring to you the most up to date and relevant analysis of deals and trends spanning across the various sectors while also highlighting the major sources of investment activity clocked in US$ 47bn in transactions across over 1,600 deals compared to US$ 49bn in 2014 across more than 1,200 transactions. The year witnessed an interesting trend where overall number of transactions increased by a substantial 38% as compared to This is the highest ever volume of transactions recorded in the last decade. This increase in the number of participants transacting this year, reinforces the underlying strength and confidence in the economy. Decreasing concentration of top 10 deals in M&A to 36% in 2015 from 46% in 2014 and PE to 27% from 33% shows deal activity is more evenly distributed and therefore is moving in the right direction. M&A activity witnessed transactions of US$ 30bn across around 600 deals the highest volumes in the last three years driven primarily by the domestic segment. M&A Activity was focused around Energy & Natural Resources, IT&ITES and Pharma, Healthcare & Biotech with these sectors contributing around 50% of overall deal activity. Government s initiatives to push for reform in FDI will continue to boost foreign investments further in Private equity with US$ 16bn across over 1,000 investments drove overall deal momentum in 2015 by consistently surpassing yearonyear investment growth in almost each month of the year. Predictably, this was driven by increasing interest in the startup segments, which continues to show no signs of slowing down, thereby, contributing to around 60% of total investment volumes during the year. The sheer volume of interest in the startup ecosystem in India is encouraging However, government initiatives to strengthen and encourage startups and improved performances by the evolved startups funded this year, will determine continuing investor interest. 2 Dealtracker Providing you with M&A and Private Equity deal insights

3 PE Exits are also likely to continue to maintain momentum this year as well, with funds exiting their stake through open market transactions, secondary sales and IPOs. With capital markets showing encouraging signs, this seems to be a dominant reality for Principal exits this year were marked in sectors like Real Estate, IT & ITES, Banking and Financial Services. The IPO market registered a comeback this year with over 60 companies raising around US$ 2bn. The QIP market, on the other hand, showed moderation by raising US$ 3bn this year compared to over US$ 5bn last year. Key IPOs included Interglobe Aviation Ltd, Alkem Laboratories Ltd and Coffee Day Enterprises. Interestingly, over 75% of the IPOs this year were listed as SMEs. Top QIPs were raised in the Banking and Financial services with IndusInd Bank, Indiabulls Housing Finance and HDFC Bank bringing in the highest values. We could classify 2015 as the year when Indian Startups came of age and disrupted the traditional business house and traditional thinking of speed and ability to grow with their scaling up, at rates that are stratospheric. We saw young entrepreneurs with their disruptive ideas and original thinking backed by VCs creating significant value and threatening established business. The wave was so strong that all leading traditional business houses are now entering this space in different ways. This also created a strong wave of startups that were the new darlings in the media and in corporates and leading to several startups getting created. Towards the end of the year, slow realisation also dawned that startups also can fail and that 80% of the startups are unable to scale. However these two factors have recreated entrepreneurialism and released entrepreneurial energy of a scale that we have not seen in the past. The Government of India and state governments are rushing to be part of this wave with policy announcements, incubators and funds. As I have said in the past M&A is now a core element of corporate strategy and is here to stay. I will conclude this foreword as I have concluded every year over the past decade that I hope we will see regulatory changes and market changes which create an atmosphere for hostile transactions. That will be a big driver of corporate growth, value and will significantly improve governance in India. Dealtracker Providing you with M&A and Private Equity deal insights 3

4 Content 1. Deal Snapshot Deal trends Mergers & Acquisitions Private Equity Startup India Public fundraising activity Regulatory impact Sector focus 51 4 Dealtracker Providing you with M&A and Private Equity deal insights

5 Deal Snapshot 2015 Prashant Mehra Partner Grant Thornton India LLP Welcome to the 11th Annual Edition of the Dealtracker Overall, 2015 has been a year of mixed sentiments as far as deal activity is concerned. While private equity investments showed tremendous growth driven by traction in the startup space, overall M&A deals have declined in spite of a growth in cross border activity. Interestingly, domestic deals clocked the highest number of deals since 2007 with 314 deals, however domestic deal values have declined. Corporate financial results being below expectations and thus balance sheets continuing to be stretched for cash in 2015 kept the bigticket domestic and outbound deals restrained has recorded overall deal activity of around US$ 47bn spread across over 1,600 deals compared to last year where deal activity clocked US$ 49bn across around 1,200 deals. While this demonstrates a 38% increase in the deal volumes, it indicates a 6% decline in deal values. With only five deals in the billion dollar club compared to nine such deals in 2014, the year did fall short of bigticket transactions that drive deal activity. Having said that, 2015 did witness 14 deals above US$ 500mn and around 80 deals above US$ 100mn. Predictably, key drivers to the overall deal momentum in 2015 continued to be the deluge of inbound activity and private equity investments Deal summary Volume Value (US$ mn) Domestic ,627 6,088 5,646 16,192 8,876 Crossborder ,845 14,537 17,995 16,871 19,524 Merger & Internal Restructuring ,789 4,541 3,989 2,030 Total M&A ,472 35,414 28,182 37,052 30,430 Private Equity ,040 7,385 10,025 12,373 16,133 Grand Total 1, ,177 1,630 55,512 42,798 38,207 49,424 46,564 CrossBorder Inbound ,055 5,985 8,741 10,895 13,538 Outbound ,789 8,552 9,254 5,976 5,986 Dealtracker Providing you with M&A and Private Equity deal insights 5

6 Inbound transactions driving M&A deal values, Domestic deals driving M&A volume growth Overall M&A deal volumes remained stagnant and values declined by 18% to close the year at around US$ 30bn, however, domestic and crossborder deals showed promising trends. Concentration of deal activity continued with top 30 M&A transactions contributing to around 60% of total M&A transactions values. Domestic transactions in 2015 with over 300 deals witnessed the highest number of transactions since However, overall values declined by 45% mainly in the absence of billion dollar deals unlike last year which saw three domestic deals in the billion dollar club (Sub PharmaRanbaxy, Kotak ING and JSWJaypee). M&A and PE Snapshot 60,000 50,000 Crossborder deals increased 16% yearonyear on back of 11 deals valued over US$ 500mn each (8 inbound deals and 3 outbound deals). Though the inbound investment volumes declined in 2015 to 131 deals (20% decline yearonyear), values have increased by 24% to US$ 14bn. The Government s initiatives in the second half of 2015 to boost FDI in the country by easing norms across 15 sectors like defence, banking and financial services, construction, single brand retail, broadcasting and civil aviation, led to inbound transactions picking up pace towards the end of the year. For outbound transaction, though the year started on a bleak note, momentum picked up towards the second half of the year. Indian overseas acquisitions stood at around US$ 6bn from 125 deals which is a marginal 8% yearonyear increase in transaction volumes. Poor corporate performances in FY15 and emerging global uncertainties have kept outbound transactions within restraint during However, given India s predicted growth trajectory, outbound deal activity is likely to pickup in ,200 1,000 Value US$ mn 40,000 30,000 20,000 10, Volume M&A Value US$ Mn PE Value US$ mn M&A Volume PE Volume 6 Dealtracker Providing you with M&A and Private Equity deal insights

7 Unprecedented activity in PE investments 2015 witnessed PE activity at an alltime peak contributing more than 60% (across around 1,000 investments) of overall deal volume and 34% (US$ 16bn) of overall deal values. The substantial increase in volume (over 70% yearonyear) was due to an impressive level of interest among PE and VC investors in India s startups. A huge chunk of the total volume (over 600 investments) involved startup investments. Investmentsize were fairly concentrated with top 3% of total investment volumes contributing to around 50% of total investment values. The year also witnessed evolved startups like Flipkart, Snapdeal, Olacabs and Paytm raising funds in excess of US$ 500mn at huge valuations. This year also saw various investor classes like angel investors, angel networks, venture capitalists and some of the more established PE funds betting on the startup growth story. For instance, Warburg Pincus invested US$ 133mn in Ecom Express during the year in order to expand its operations in tier 3 and 4 cities among other aspects. M&A Sectors: Most transactions from Energy & Natural Resources; IT and Pharma continue to dominate M&A activity Top three sectors for M&A deals this year were Energy & Natural Resources, IT & ITES and Pharma, Healthcare & Biotech with the last two sectors figuring as top sectors in 2014 as well. The Energy & Natural Resources sector has consistently witnessed large M&A transactions since 2013 with aggregate investments in this sector totalling US$ 17.5bn across the last three years. In 2015, notable deals in this segment are VedantaCairn, ONGCVankor and Reliance Industries sale of Eagle Ford Shale (USA). IT & ITES (US$ 5,378mn) and Pharma, Healthcare & Biotech (US$ 4,047mn) were among other sectors that witnessed relatively high transaction values in Telecom also witnessed significant deal activity with four large (above US$ 100mn) transactions in this sector (ATCViom, RelianceSistema, IdeaVideocon and Vodafone s minority stake sale in Bharti Airtel). PE Sectors: Investment concentration in IT& ITES sector drove overall PE investment growth In 2015, IT & ITES sector witnessed 38% growth yearonyear, thereby reaching the highest record in this segment. This sector alone contributed to 45% of total investments with US$ 7bn in 2015, thereby driving investment growth this year. Additionally, top 15 deals (with ticket size of above US$ 100mn each) contributed to around 50% of total IT&ITES transaction values in Banking and financial sector also witnessed deal growth of over 56% yearonyear in Investments of more than US$ 100mn each have been made in around seven BFSI players in 2015, which adds up to more than 60% of total investments in this sector. Real estate investments have declined by more than 20% yearonyear, however, it continues to attract substantial investments from PEs being this year s third largest sector by value. Energy & Natural Resources and Pharma, Healthcare & Biotech also attracted fair deals valuation during the year. Dealtracker Providing you with M&A and Private Equity deal insights 7

8 Roundup and Outlook The total deal activity in the year to date seems to be slightly below 2014 but there is good continuing momentum. Interestingly, where average deal size in domestic M&A has come down from around US$ 64mn to US$ 28mn, the average deal size for inbound investments has moved up from US$ 66mn to US$ 103mn. This throws a few indicators such as firstly, because the Make in India initiative is working and the overall macroeconomic indicators are looking good, India has started attracting foreign investment in the key sectors which is further collaborated by the fact that India has been the largest receiver of FDI in H1 of 2015 of US$ 31bn. Secondly, with the average deal size almost doubling for inbound investments, there is a resilient foreign investor confidence building up. On the flip side, with the Domestic M&A sliding in value terms and also with the average deal size going down, is perhaps an indicator that corporate balance sheets continue to be stretched for cash to invest in inorganic growth and as acquisition financing is still not permitted in India, thus the focus was on organic growth. With inflation in control and GDP growth being revised to now end higher than anticipated, all the necessary ingredients seem to be in place for growth in deal activity as well. The recent FDI norms and the much awaited GST will perhaps be a game changer and will further accelerate the deal activity from an inbound investment, domestic M&A and PE perspective. Indian assets are expected to remain in focus as Inbound and Domestic M&A accelerate on the back of pickup in alternate buy out financing by PEs and increased capital market activity both volume and value will clearly be on an uptrend here. More visibility on onground action and visibility of economic growth and reforms will push domestic corporates to look at inorganic growth. Government s actions on key policy issues and reforms such as GST, the new Companies Act, ITP for Tech startups, land acquisition, unblocking stalled projects, etc should improve the ease of doing business in India and therefore may further accelerate the transaction activity in India. 8 Dealtracker Providing you with M&A and Private Equity deal insights

9 Deal trends M&A trend chart Value US$ mn 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Value Volume Volume Q32013: The quarter saw two billion dollar deals Unilever Plc. increasing its stake to 67.26% by acquiring 14.78% in Hindustan Unilever Ltd. for US$ 3.1bn. Q22014: With the new government in place, the quarter witnessed two billion dollar deals Sun Pharmaceutical Industries Ltd. s acquisition of Ranbaxy Laboratories Ltd. for US$ 3.2bn. Q22015: In 2015, the month of June witnessed highest aggregate M&A transaction value amounting to US$ 4.6bn from 37 deals that took place during the month on the back of two billion dollar deals in the Energy and Natural Resources sector. PE trend chart Volume US$ mn 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Value Volume Volume Q22013: The quarter saw Qatar Foundation Endowment s investment in Bharti Airtel Ltd. for US$ 1.3bn. Q32014: Multiple investors like Morgan Stanley Investment Management, GIC, Accel Partners, DST Global, Iconiq Capital and Sofina invested US$ 1000mn in Flipkart in this quarter. Q42014: Joint investment by Baillie Gifford, Greenoaks Capital, Steadview Capital, T Rowe Price Associates, and Qatar Investment Authority and existing investors like DST Global, GIC, Iconiq Capital, and Tiger Global invested US$ 700mn in Flipkart. Q32015: Q32015: IT & ITeS attracted highest investment in terms of volume (198 deals) and value (US$ 3,003mn). Dealtracker Providing you with M&A and Private Equity deal insights 9

10 Mergers and Acquisitions Deal roundup: domestic Value US$ mn Q1 Q2 Q3 Q4 Value US$ mn 2013 Value US$ mn 2014 Value US$ mn 2015 Volume 2013 Volume 2014 Volume Volume Domestic, mergers & internal restructuring in 2015 saw a high growth in transaction volumes in Q22015 after which it was muted. Deal values in Q22015 was driven by VendataCairn s deal worth US$ 2,300mn. Therefore, Q22015 witnessed considerable deal activity as compared to other quarters contributing to 48% of total deal value. Q42015 saw a marginal recovery where 89 deals worth US$ 2,786mn were transacted. The year 2015 saw fewer billion dollar transactions as compared to 2014 which had witnessed transactions like Sun PharmaRanbaxy (US$ 3,200mn), KotakING Vysya(US$ 2,500mn) and JSWJaypee Group (US$ 1,496mn). Top 5 deals Acquirer Target Sector Value (US$ mn) Deal type Stake (%) Vedanta Ltd Cairn India Ltd Energy & Natural Resources 2, Merger N.A. Aditya Birla Group Aditya Birla Fashion and Retail Ltd Retail & Consumer Merger 100 Idea Cellular Ltd Videocon Telecommunications Ltd Spectrum Telecom Acquisition 100 Cavendish Industries Ltd KesoramIndustries Ltd Manufacturing Acquisition 100 JK Tyre & Industries Ltd Cavendish Industries Limited Automotive Acquisition Dealtracker Providing you with M&A and Private Equity deal insights

11 Domestic Transactions: Regions in Focus NCR 4, Chandigarh Ahmedabad 83 9 Mumbai 2, Kolkata Pune Hyderabad Bengaluru Chennai Values Volume Dealtracker Providing you with M&A and Private Equity deal insights 11

12 Deal roundup: CrossBorder Inbound deal trends Value US$ mn 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Q1 Q2 Q3 Q4 Values (US$ mn) 2013 Values (US$ mn) 2014 Values (US$ mn) 2015 Volume 2013 Volume 2014 Volume Volume Though the inbound investment volumes declined in 2015 to 131 deals from 164 deals, the values have increased significantly by 24% to US$ 13.6bn from US$ 10.9bn. With three deals in the billion dollar club and five deals valued above US$ 500mn, the deal ticket sizes have improved this year. Inspite of 2015 starting off on a passive note compared to 2014; the year has demonstrated steady increase in deal values with bigticket deals happening across all four quarters. Top 5 deals Acquirer Target Sector Value (US$ mn) Deal type Stake (%) Centerbridge Partners LP Suzlon Energy Ltd Senvion SE(German subsidiary) Manufacturing 1, Acquisition 100 American Tower Corporation Viom Networks Telecom 1, Majority Stake 51 Enterprise Products Partners Ltd Eagle Ford Shale Energy & Natural Resources 1, Acquisition 50 Harman International Industries Symphony Teleca Corporation Symphony Technology Group IT & ITES Acquisition 100 Mylan Inc Mylan Laboratories Limited Famy Care Ltd Pharma, Healthcare & Biotech Acquisition Dealtracker Providing you with M&A and Private Equity deal insights

13 Mergers and Acquisitions Outbound deal trends Value US$ mn 4,000 3,500 3,000 2,500 2,000 1,500 1, Top 5 deals Q1 Q2 Q3 Q4 Value US$ mn 2013 Value US$ mn 2014 Value US$ mn 2015 Volume 2013 Volume 2014 Volume Volume Outbound M&A transactions grew 8% yearonyear in terms of the deal volumes, however the value remained consistent. Indian acquisitions overseas stood at US$ 6bn across 125 deals. From less than US$ 1bn in Q12015, deals in Q32015 showed significant increase to US$ 3.6bn. This is due to a billiondollar deal (ONGC Videsh s 15% stake in CSJC Vankorneft Vankor for US$ 1.3bn) and three deals valued over US$ 500mn each. Additionally, there were nine deals valued over US$ 100mn each. In 2015, though volume of transactions started on a high note, the transaction values have remained low. Poor corporate performances and global uncertainties have kept outbound transactions within restraint. Acquirer Target Sector Value (US$ mn) Deal type Stake (%) ONGC Videsh Ltd CSJC Vankorneft Vankor Energy & Natural resources 1, Minority Stake 15 Lupin Ltd. Gavis Pharmaceuticals Llc. and its affiliate Novel Laboratories Inc. Pharma, Healthcare & Biotech Acquisition 100 Cipla Ltd. InvaGen Pharmaceuticals Inc. Pharma, Healthcare & Biotech Acquisition 100 Rajesh Exports Ltd. Valcambi SA Energy & Natural Resources Acquisition 100 Strides Arcolab Ltd. Aspen Pharmacare's generic pharmaceutical business in Australia Pharma, Healthcare & Biotech Acquisition 100 Dealtracker Providing you with M&A and Private Equity deal insights 13

14 CrossBorder deals: geographic track UK Canada 863 USA 7,340 2,439 Inbound (Value US$ mn) Outbound (Value US$ mn) France Dealtracker Providing you with M&A and Private Equity deal insights

15 Mergers and Acquisitions Beligium Netherlands Germany China 1525 Japan Malaysia 865 Middle east 265 South Africa Singapore Australia Italy Dealtracker Providing you with M&A and Private Equity deal insights 15

16 M&A sector focus Industry Value US$ mn Avg deal size Energy and Natural Resources 7,229 4,749 5, IT and ITES 1,264 6,307 5, Pharma, Healthcare and Biotech 4,142 5,675 4, Manufacturing 3,259 2,678 3, Telecom 2,493 3,547 2, Banking & Financial Services 1,131 3,631 2, Retail & consumer 3,669 3,619 2, Media and Entertainment 277 1,453 1, Real Estate 1,452 2,286 1, The Energy and Natural Resources sector has consistently witnessed large M&A transactions, with aggregate investments in this sector since 2013 totaling US$ 17,580mn. In 2015, this sector witnessed the highest transactions with US$ 5,603mn spread across 21 deals. Notable deals in this segment are VedantaCairn, ONGCVankor and Reliance Industries sale of Eagle Ford Shale (USA). IT & ITES (US$ 5,378mn) and Pharma, Healthcare and Biotech (US$ 4,047mn) were among other sectors that witnessed relatively high cumulative transaction values in Telecom sector witnessed highest average deal size of US$ 325mn in 2015 on account of four large (above US$ 100mn) transactions in this sector (ATCViom, RelianceSistema (deal value pegged to be US$ 686mn), IdeaVideocon, and Vodafone s minority stake sale in Bharti Airtel). 16 Dealtracker Providing you with M&A and Private Equity deal insights

17 Mergers and Acquisitions Expert speak: M&A deal trends Sumeet Abrol Partner Grant Thornton Advisory Private Limited Private Equity transactions reached record levels in 2015 and the overall M&A volumes reached a 5 year high, demonstrating progressive investment confidence since last year. While strategic M&A activity remained moderate through the year, domestic & inbound transactions continue to be in momentum domestic volumes increasing 25% and inbound deal values surging 24% over last year. As far as sectors as concerned, while Energy dominated transaction values, IT/ITES was the clear flag bearer on volumes with over 190 transactions against 132 in Another key takeaway for this year was sustained investment interest in Manufacturing with deal values increasing 34% yearonyear, a trend likely to further consolidate in With growth rates expected to further strengthen to 7.5% in 2016, remaining significantly above other emerging market economies, India is likely to be the favoured investment destination in the coming year. Make in India initiatives, a foreign policy based on economic engagement, and a far more stabilised tax regime are all expected to catalyse inbound investments in Domestic activity on the other hand would continue to remain busy on back of sustained sectoral consolidation, particularly in sectors like IT/ITES and ecommerce Dealtracker Providing you with M&A and Private Equity deal insights 17

18 Five year M&A Recap Fewer bigticket transactions in 2015, have led to a decline in average deal sizes. Deals valued at above US$ 100mn have reduced in 2015 to 59 deals from 61 deals in Average M&A Deal Sizes > US$ 1000mn US$ 500mn US$ 999.9mn US$ 100mn US$ 499.9mn US$ 50mn US$ 99.9mn <49.9mn Value not disclosed Dealtracker Providing you with M&A and Private Equity deal insights

19 Private Equity PE investments: Cities in focus The NCR region collectively witnessed 318 investments, thereby contributing to more than 25% of the investment volumes. The top three investments were Snapdeal (Jasper Infotech US$ 500mn), Renew Power Ventures (US$ 265mn) and Mankind Pharma (US$ 206mn). Companies in Bangalore the IT capital of the country attracted over 270 deals. Largest deals in this region were Flipkart s US$ 750mn investment, Atria Convergence s US$ 500mn and Manipal Health Enterprises US$ 150mn investment. Mumbai witnessed the highest investments by value and attracted 248 PE/VC investments in Olacabs (ANI Technologies Pvt Ltd) which received over US$ 1,122.5mn in 2015, Crompton Greaves (US$ 316mn) and Piramal (US$ 83.6mn) were some of the top deals in this region. Punjab Delhi NCR 3, Jaipur Ahmedabad Kolkata Mumbai 5, Pune Hyderabad Bengaluru 3, Kerala Chennai 1, Value US$ mn Volume US$ mn Dealtracker Providing you with M&A and Private Equity deal insights 19

20 Sector focus Industry Value US$ mn Avg deal size IT & ITES 1,192 5,249 7, Banking & Financial Services 1,115 1,293 2, Real Estate 954 1,659 1, Energy & Natural Resources , Pharma, Healthcare and Biotech 1, , Manufacturing Retail & consumer Media and Entertainment The IT & ITES sector has witnessed exponential growth over the last three years. In 2015, this sector witnessed 38% growth yearonyear, thereby reaching the highest record in this section. Top 15 deals (with ticket sizes of above US$ 100mn each contributed to around 50% of the total IT & ITES transactions in The Banking and Financial sector also witnessed deal growth of over 56% yearonyear in Investments of more than US$ 100mn each have been made in around seven BFSI players in 2015, which adds up to more than 60% of the total investments in this sector. Real Estate investments have declined by more than 20% yearonyear, however, it continues to attract substantial investments from PE/VCs, being this year s third largest sector by value. These investments continue to be concentrated, with seven investments (above US$ 50mn) alone contributing to more than 65% of the total investments in this sector 20 Dealtracker Providing you with M&A and Private Equity deal insights

21 Private Equity Top 5 PE investments Investor Investee Sector % Stake Baillie Gifford, Greenoaks Capital, Steadview Capital, T Rowe Price Associates, Qatar Investment Authority, DST Global, GIC, Iconiq Capital, and Tiger Global Carlyle Group TA Associates and India Value Fund Advisors Foxconn, Alibaba and SoftBank Baillie Gifford, Falcon Edge Capital, Tiger Global, SoftBank Group and DST Global Flipkart Online Services Pvt Ltd Magna Energy Ltd Atria Convergence Technologies Jasper Infotech Pvt Ltd Snapdeal.com Olacabs.com ANI Technologies Pvt Ltd Investment US$ mn IT & ITES N.A Energy & Natural Resources N.A Telecom 95% IT & ITES N.A IT & ITES N.A PE vs. VC Deal movements Value 5,000 4,000 3,000 2,000 1,000 Q Q Q Q Q Q Q Q Volume PE Value US$ mn VC Value US$ mn PE Volume VC Volume VC investments are gradually picking up pace inching closer to PE investments in terms of value. This trend has been more prominent in 2015 with VC investments reaching a two year high of US$ 2.4bn in Q As far as number of investments are concerned, VC volumes have shown a steep incline as compared to PE volumes. This increase in VC investments is mainly on account of their investments in startups which has seen a tremendous volumes during Dealtracker Providing you with M&A and Private Equity deal insights 21

22 Private Equity Exits Exit Volumes ( ) Exit route (2015) Fully Exited Sectors (2015) 43% 57% Full Exit 1% 4% Part Exit 44% 51% Open Market transaction Secondary Sale Buyback IPO 18% 21% Real Estate IT & ITES Banking & Financial Services 7% 9% Manufacturing 15% Energy & Natural resources Pharma, Healthcare & Biotech Retail & Consumer 8% 12% Others 10% Private Equity exits: Majority of the PE investors (57%) fully exited their investments during the year, while the remaining continued to retain a part of their investment. Key notable PE exits Exit route: In 2015, popular exit routes for PE/ VCs were open market transactions (51% of total number of exits) and secondary stake sales (43% of total exits). Sector exit trends: Fully exited sectors in 2015 include Real Estate (17 exits) which was the most popular sectoral exit, followed by IT & ITES (12 exits) and BFSI (10 exits). Investor exited Investee company Part/ full exit Sector TPG Capital Shriram City Union Finance Full Exit Banking & Financial Services Avantha Holdings Crompton Greaves Ltd Full Exit Manufacturing Barings Private Equity Lafarge India Pvt Ltd. Full Exit Maufacturing Kolhberg Kravis and Roberts Bharti Infratel Part Exit Infrastructure ChrysCapital Mankind Pharma Full Exit Pharma,Healthcare & Biotech Helion Venture Partner and IDG Ventures Flipkart Part Exit IT&ITES 22 Dealtracker Providing you with M&A and Private Equity deal insights

23 Private Equity Expert speak: PE Investment Trends Raja Lahiri Partner Grant Thornton India LLP The year 2015 was truly the year for private equity and venture capital with deal values crossing US$ 16bn with transactions. While venture capital activity was at a peak with internet and ecommerce ruling the fundraising market, private equity also saw robust action across sectors like technology (IT Services/BPO), healthcare, financial services and consumer. Internet and ecommerce fundraising witnessed frenzy in 2015 and the same is expected to continue in 2016, but with some moderation. We continued to witness some of the larger players like Flipkart, Snapdeal, Olacabs and Paytm raising funds in excess of US$ 500mn at terrific valuations. This clearly led to the spurt of deal making activity in this sector and the vibrant startup deal action across various investor classes, angel investors, venture capital and also some of the larger PE Funds placing bets on this gamechanger internet and ecommerce sector. In my view, we are possibly witnessing the creation of a completely new ecosystem of startups covering newage entrepreneurs trying to solve consumer problems and converting the solution to a sustainable business model and coming of digital convergence in the consumer ecosystem. While the pace of activity has seen some slowing down in the later part of 2015, in my view, I do expect valuations to moderate as well as more consolidation in this space in However, strong business models with superior solution offering will continue to be in demand for investors in The digital theme covering commerce, media, financial services, agriculture, consumer etc. will possibly move to the next level in 2016 and continued focus on innovation and solution will remain attractive for investors. Dealtracker Providing you with M&A and Private Equity deal insights 23

24 Traditional technology players continue to remain attractive for PE Funds Traditional technology players covering BPO and IT services continue to remain an attractive sector for PE Funds. With Blackstone acquiring majority stake in Serco, Blackstone in IBS Software and Apax Partners in Zensar Technologies demonstrate the continued interest. In my view, technology services will continue to remain attractive in 2016 for PE Funds and we could see some consolidation action (M&A/PE buyouts) getting triggered as well. PE expected to surge in Healthcare sector In my view, the Healthcare sector could see a surge in PE investment activity in 2016 across hospitals, medical devices and pharmaceuticals. There are lots of PE Funds which have invested in this sector looking at exit opportunities and seize the opportunity to exit either through IPO s or through secondary exists to PE Funds. We have already witnessed surge in the PE investments and exits in this sector, for example, TPG Capital s investment into Manipal Hospitals, IPO of Narayana Hrudalaya, India Value Fund s recent investment in CloudNine Hospitals, Temasek s investment into Glenmark Pharma and Temasek s investment into Medanta Hospitals. Exits would continue to remain key area of focus for PE funds With the economy growth expected to improve in 2016, we would possibly see good increase in IPO market and also, debt laden organisation tapping the PE route to liquate debt. We could see action in sectors like infrastructure and industrials. Exits would therefore continue to remain key focus for many PE Funds and I do expect better outcomes given better economic growth expectations, better IPO market and better inbound M&A market. PE Outlook 2016 With the Indian economy expected to be the fastest growing economy globally, global PE funds are expected to increase their India allocations and fund deployment are expected to increase Also, the average deal size is expected to increase in Fund raising for Indian PE Funds will get better in 2016 given the positive macro environment factors but will continue to be competitive and we could see also trend in allocation towards startup funds. For the entrepreneur, the outlook and fund raising environment will continue to remain positive but one would expect the key sectors around internet and ecommerce, technology services, financial services, healthcare and consumer possibly drive most of the private equity investment action in Raja Lahiri 24 Dealtracker Providing you with M&A and Private Equity deal insights

25 Private Equity PE/VC Recap The average deal size of PE investment activity remained subdued at a five year low as a result of a large number of seed to series A funding focused primarily on startups, during this year. Average PE Deal Sizes > US$ 500mn US$ 100mn US$ 499.9mn US$ 50mn US$ 99.9mn <49.9mn Value not disclosed Dealtracker Providing you with M&A and Private Equity deal insights 25

26 Our Corporate Finance practice comprises 100 senior multifaceted specialists with over 400 years of experience in providing endtoend solutions. Vishesh Chandiok Harish HV Raja Lahiri Siddhartha Nigam Sridhar V Dhanraj Bhagat Prashant Mehra Sumeet Abrol Darshana Kadakia Rahul Kapur Ashish Chhawchharia Vrinda Mathur Vikarth Kumar Chetan Khandhadia Manish Saxena Vibhor Sharma 26 Dealtracker Providing you with M&A and Private Equity deal insights

27 Gautam D Abhay Anand Pankaj Chopda Akshay Deshraj Shanthi Vijetha Anirudh Gupta Santhosh C Kinnari Gandhi Meghna Bansal Dealtracker Providing you with M&A and Private Equity deal insights 27

28 Startup India Investment momentum in startups have increased rapidly over the last five years with investment values increasing at a CAGR of over 75% between 2011 and 2015 while investment volumes have increased at a CAGR of more than 80% in the same period ended on a highnote with startups driving investment activity in the PE space. Of the total 1049 investments in 2015 in PE/VC space, more than 50% was driven by startup activity compared to 2014 where startups contributed to only 32% of the overall investment activity. Though, the year kicked off on a relatively slower pace, around Q22015, investment activity (volume) increased substantially by around 200% and sustained this pace throughout the year. The year witnessed a lot of traction with 601 companies obtaining funding of more than US$ 2.2bn from PE and VC funds. Out of the total deals in this period, two startups have received funding above US$ 100mn each while there have been five startup investments above US$ 50mn each. The above US$ 100mn transactions have occurred in 2015 which include Warburg Pincus investment in Ecom Express (US$ 133mn) and two rounds of funding (cumulatively US$ 290mn) in Foodpanda.com (Pisces EServices Private Limited) by investors like Rocket Internet, Goldman Sacs Falcon Edge and Phenomen Ventures. Investments above US$ 50mn include popular names like Housing.com (US$ 90mn from Softbank), Hike Technologies (US$ 65mn from Tiger Global and Bharti Softbank Pte Ltd), Little Internet (US$ 50mn from Tiger Global, SAIF Partners and angel investors) and Netmeds (US$ 50mn from OrbiMed and MAPE Advisory Group). Methodology and Disclaimer: The criteria used to define startups include: a) The Company should have been incorporated for three or less than three years as at the end of that particular year. b) The Company is a player in a nontraditional service industry c) The Company has received funding only up to Series B. Deals have been classified by sectors and by funding stages based on certain assumptions, wherever necessary. 28 Dealtracker Providing you with M&A and Private Equity deal insights

29 Startup evolution: 2011 to 2015 Value 2,500 2,000 1,500 1, , Volume Value US$ mn Volume Momentum in startup investments has seen an unprecedented increase in 2015, in terms of value and volume. During the period from , investment values have maintained a substantially high momentum of steady CAGR above 20% quarter on quarter. Quarterly startup trends Value Volume Q Q Q Q Q Q Q Q Q Q Q Q Value US$ mn Volume Dealtracker Providing you with M&A and Private Equity deal insights 29

30 The top three sectors that cumulatively received funding of US$ 1.8bn include consumer, logistics and enterprise solutions, which together account for more than 80% of the total investment activity. Other key segments that witnessed deal activity include Health (7% of total investment value) and Fintech ( 5% of total investment value). Startup sectors Value 1,400 1,200 1, Consumer Logistics Enterpise Application & Infrastructure Health FinTech Other Sectors Volume Value (US$ mn) Volume B2C verticals, within these sectors, that have had the maximum traction are food tech, on demand & hyperlocal services, discovery platforms and retail, which accounted for around 50% of the total investment flow in this space in The B2B vertical witnessed increased activity in key segments like Logistics, Enterprise Applications and Enterprise Infrastructure B2C: Startup Verticals Value Food Tech Discovery On Platforms Demand & Hyperlocal Retail Travel & Transport Consumer Health Tech Real E state Media & Entertainment Education Tech Apps and Tech Others Volume Value (US$M) Volume 30 Dealtracker Providing you with M&A and Private Equity deal insights

31 Startup India Indian startup cities The startup ecosystem continues to be concentrated in regions like NCR, Bangalore and Mumbai which together contribute to 87% of the total investment value and 84% of the total investment volume in The national capital region (NCR) witnessed the highest investment activity which gradually increased from 15 investments in 2011 to above 200 investments in Investment activities have also been on the rise in the IT hub of the country Bangalore, where investment values in 2015 have grown by over 160% yearonyear. While the number of transactions have been fairly high (59 deals in 2014 and 171 deals in 2015) investment values have been at US$ 596mn due to the absence of bigticket investments (above US$ 100mn). Mumbai has also seen significant traction in the investment activity, where investment volumes grew by almost 200% yearonyear to about 130 investments in However, growth in investment values to US$ 366mn in 2015 from US$ 253 in 2014, was not as substantial (45% yearonyear) as the growth in volumes. Startup cities Value 1,200 1, NCR Bangalore Mumbai Chennai Pune Others Volume Value US$ mn Volume Dealtracker Providing you with M&A and Private Equity deal insights 31

32 Expert speak Trends in StartUp funding Kinnari Gandhi Director Grant Thornton India LLP Trends in startup investments Introduction There has been a flurry of new startups and innovations in India in recent years. The Indian startup ecosystem has evolved, being driven by factors such as growth in number of funds/angels, evolving technology, higher smart phone and social media penetration, growth in incubators and accelerators, younger demographics etc. Recent government initiatives like Startup India, Stand up India will result in additional momentum in this space. Trends in funding 2015 witnessed the maximum traction in this space with over 600 companies getting funding; more than US$ 2bn being deployed by PE and VC funds. Some of the top deals were Warburg Pincus investment in Ecom Express, Rocket Internet AG and Goldman Sacs investment in Foodpanda and Tiger Global and SAIF Partners investment in Little Internet. In the earlier years startup sectors which were attracting funding was limited to IT and Consumer and Retail. However recently there has been a huge influx of startups in other verticals like discovery platforms, payment gateways, hyper local services, ecommerce logistics, healthcare, food tech, cab aggregators etc. All these in some way or other being allied to the consumer technology sector enabling ecommerce. The B2C is gaining more impetus with more than 400 deals in this space in 2015 which include verticals like foodtech, hyperlocal deliveries, ondemand services, discovery platforms, retail etc. The B2B section is also gaining momentum with focussed startups in the logistics, enterprise applications and infrastructure space. Majority of the startup companies are based in the NCR region followed closely by Bangalore and Mumbai. 32 Dealtracker Providing you with M&A and Private Equity deal insights

33 Startup India Over and above the US$2billion deals in the startup space, other top deals in the overall tech space in 2015 include the usual suspects i.e. investment of US$ 700mn in Flipkart by Sequoia Capital & Steadview Capital, US$ 500mn in Snapdeal by Alibaba, Softbank & others, over US$ 1100mn in Olacabs by a group of investors including Tiger Global, Softbank, DST Global etc. Other fairly large transactions include investment in Quikr, Jabong, Grofers, Shopclues, Pepperfry and Oyorooms who have received funding of more than US$ 100mn. Investors such as Accel Partners, Blume Ventures, Tiger Global, Kaalari Capital, SAIF Partners, Sequoia Capital, IDG Ventures, Helion Ventures, Kae Capital, Nexus Ventures and the Indian Angel and Mumbai Angel Network continue to dominate the market. M&A activity continues to rise in this space with Alibaba acquiring stake in Paytm, OlaCab s acquisition of TaxiFor sure, Jasper s acquisition of Freecharge.com, Zomato s acquisition of IACUrbansppon etc saw a new class of investors which were attracted to this asset class. Corporate honchos like Ratan Tata s and Aziz Premji s interest in the consumer tech space is very encouraging and benefitting, as firstly it lends the much needed credibility to a startup business for it to not just attract other investors but it also strengthens their customer and vendor relationships. Corporate czars are expected to have a long term horizon for their startup investments which will give the companies the required space and opportunity to grow without undue pressure on early exits. Corporate houses like Reliance, Wipro, Infosys, RPG, Jindal etc. are also setting up their own venture capital arm. Also successful startup entrepreneurs like Snapdeal s Kunal Bahl and Rohit Bansal, Flipkart s Sachin Bansal and Binny Bansal are playing angel investors; they bring valuable experience & network apart from the financial support to the startup community. Startup Outlook 2016 Slight pessimism had started setting in the second half of 2015 with starts ups shutting down and retrenching employees. However in 2016 we expect that innovative new startups will continue to attract investor interest. There will be increased rationality in this ecosystem, funding may get tougher and focus will increase to fundamentals, justification around valuations and scalability. There may be a fewer number of unicorns in the making as a result of this. Consolidation will be on the rise and valuations in this space may still be aggressive. An investor s ability to mentor and nurture a startup s idea will attract young entrepreneurs compared to pure financial investors; this will also lead to a winwin situation for both. Kinnari Gandhi Note: The criteria used to define startups include: a) The Company should have been incorporated for three or less than three years as at the end of that particular year. b) The Company is a player in a nontraditional service industry c) The Company has received funding only up to Series B. Deals have been classified by sectors and by funding stages based on certain assumptions, wherever necessary. Dealtracker Providing you with M&A and Private Equity deal insights 33

34 Expert Speak: Opportunities and challenges facing startups Anirudh Gupta Director Grant Thornton India LLP As the Indian startup space goes through its own economic cycle, opportunities abound, however with a set of challenges. Some of the opportunities and challenges facing the startups are discussed below. Opportunities Policy initiatives Indian government aims to build an ecosystem that promotes entrepreneurship at the startup level and has taken a number of initiatives to ensure that the startup businesses get appropriate support of higher involvement and interest of larger and established businesses. Some of these schemes include Make in India, Standup India, Digital India, Mudra Scheme, Set up exchange, SETU, etc. Increasing presence of global incubators Startup incubators are companies that assist new startups in their initial phase of development by providing various services. Incubators share both tangible and intangible resources such as equipment, office space, services such as accounting, computing and legal services. They also assist startups in raising startup capital and perform various networking activities to reduce the financial burdens and resource issue. Incubators help entrepreneurs in building sustainable business environment while benefiting the broader corporate communities. Growth in the level of venture capital and seed funding Although we see a growing trend in terms of venture capitalists and angel investors providing funding to startups, there are still a large number of startups which still find it difficult to get funding. The challenge faced by startups to acquire funding is not limited only to seed rounds, but is also faced in the Series A and B rounds. Unfortunately, the number of investors in India are few, and also do not invest large amounts in startups. 34 Dealtracker Providing you with M&A and Private Equity deal insights

35 Startup India Focus on ease of doing business in India Single online clearance system: The Prime Minister is planning to bring an online approval window which will provide over 200 permits required by different industries from various government divisions. Simplification of regulatory regime: The PM aims to bring India ranking on the ease of doing business to 50 from the current ranking of 142nd by the World Bank s index, and is working on simplifying business processes and regulations. Demographic dividend According to the UN, India has the largest youth population even though it has a smaller population as compared to China. The youth is usually the driving force behind innovation and also is responsible for a growth in demand and consumption. The youth forms the most important part of the workforce which would work for startups and thus present a huge opportunity for startups to grow. Role of larger businesses Big corporates generally focus on innovation, performance excellence and risk management in order to compete in the dynamic global business environment. Issues related to tightening of R&D budgets, increasing digital disruption and organisational bureaucracy make it difficult for the larger companies to innovate on their own. Challenges Every startup faces problems and so do Indian startups with some problems being unique to the Indian startup ecosystem. The challenges faced by the Indian startups can be classified under the following categories: Culture The Indian culture has conditioned people to look down upon failure. For failures, opinions do come by but encouragement rarely so. Entrepreneurship is often about failing and learning from those failures and starting all over again. People need to start accepting failures and allow second chances. Awareness People at large are unaware about how they can contribute to the economic growth, generate employment and contribute to social development. People are conscious about risk and rewards, and India is referred to as a price sensitive market. However, the fact is that people are not price sensitive they are value sensitive. Judgement can be impacted due to lack of awareness. Social issues Mentorship/Guidance: Most founders of failed startups feel that the lack of proper guidance and mentorship is a major reason behind their failure. An important factor behind failures and slow growth of some organisations is the lack of quality mentorship, especially in terms of industry knowledge/support. Market structure: Indian markets are largely unorganised and fragmented creating a roadblock for a startup to succeed. Consumer behaviour: Behaviour of Indian consumer changes in every 30 to 50 km, which makes it difficult for a startup to create a business or market strategy for their products or services. Most startups generally become stagnant and gradually shut down due to lack of growth. Dealtracker Providing you with M&A and Private Equity deal insights 35

36 Location: Another issue faced by startups is related to the location of their business. India is a place with varied culture and taste and thus every product may not be welcomed equally in every region. Technology issues Appropriate ITinfrastructure has become a need for Indian businesses, given the growing number of consumers online. Most startups have a B2B business model. This is where cyber risk may rise as they are not aware of potential risks that might exist for their startup business. It is absolutely vital for new startups to train their employees for handling critical customer information like that of credit card numbers and related data. No backup plan to keep the startup company running when an accident destroys some key equipment in their data centre. Financial issues Operational finance: Most startups are self/family funded with limited workforce which makes it difficult to maintain records both financial and operational. Funding/Capital deficiencies: Capital and access to capital has been a perennial problem for startups. Though government and private sector investors have set aside funds through investment channels but they are not available for all forms of business. The biggest problem for such organisations has been to attract investors and gain their trust with regard to their mode of operations. In the initial phase of operations, startups do not get funding from banks, given no credit history of the firm. In addition, there are limited number of credit rating firms for small and medium sized enterprise. Cash flow management: Effective cash management is an important factor to achieve objectives both short term and long term. Cash is still a preferred option for payments owing to the fact that electronic payment has not achieved complete penetration to Tier 2 and Tier 3 cities. Gap between burn rate and revenue: Given rising competition from peers both from big as well as small, it becomes imperative for startups to scale up the business and require external funding for the sustainability/ growth in the market. Sustainability issues The level of knowledge that business advisers have about ecological issues and their willingness to discuss this with their clients is important in creating business ventures. Lack of information Provision of more information directly to business founders could help in the adoption of more sustainable business practices. Not aware of potential that might exist for their startup business. Role of public funding in promoting sustainable enterprises is often overlooked. 36 Dealtracker Providing you with M&A and Private Equity deal insights

37 Public fundraising activity IPO trends 2, , Value 1, Volume Value Raised Volume 2015 proved to be a year of comeback for the IPO market with some strong debuts. This IPO resurgence is also likely to lift PE/VC activity, paving the way for them to exit their investments. The year witnessed US$ 1.7bn raised via IPO, which is a 633% increase as compared to Companies used this capital to support their business expansion and working capital requirements. 60 companies issued IPOs in 2015 as compared to 35 in Over the last few years, the domestic IPO market had been hit by high volatility in stock markets and slowdown in the economy in the past few years. But, the steps taken by the government to create an investor friendly environment is likely to attract more foreign inflows, thereby giving a boost to IPO activity in However, emerging global worries with developments in China are likely to affect the Indian IPO market in early Value US$ mn 1, Q1 Q2 Q3 Q Dealtracker Providing you with M&A and Private Equity deal insights 37

38 QIP trends 6, , Value 4,000 3,000 2, Volume 1, Value US$ mn Volume In 2015, 31 companies have raised about US$ 3.1bn through QIP s, as compared to US$ 5.4bn raised in 2014 by 30 companies. Considering these volumes, QIP continues to be one of the popular ways for companies to raise money in shorter time periods. Some of the larger QIPs this year were primarily in BFSI which witnessed US$ 2,061mn. QIP placements of above US$ 100mn include IndusInd Bank, Indiabulls Housing Finance, HDFC Bank, Bajaj Finance, Strides Shasun and Dewan Housing Finance Corporation. Value Q1 Q2 Q3 Q Value US$ mn 2015 Value US$ mn 2014 Volume 2015 Volume Volume Average QIP size this year (excluding the above mentioned large deals), is around US$ 38mn. QIPs have also been raised in Pharma, Healthcare & Biotech, Infrastructure management and Manufacturing. 38 Dealtracker Providing you with M&A and Private Equity deal insights

39 Our Corporate Finance practice has advised key deals in the past From identifying the right strategic fit to structuring and closing the deal, we can support you in all aspects of your transaction to maximise value. Dealtracker Providing you with M&A and Private Equity deal insights 39