PE, VC deals may remain tempered in 2024: Bain and Co study

Private equity (PE) and venture capital (VC) deals may remain tempered this year as the global macroeconomic situation stabilizes, consultancy Bain and Co. and non-profit Indian Venture and Alternate Capital Association (IVCA) said in the latest edition of their ‘India Private Equity Report’.

Sectors such as healthcare, advanced manufacturing, infrastructure, and green energy are expected attract “outsized investments” on positive fundamentals, supportive policy environment, and the emergence of scale assets across multiple sub-segments, the report said.

The report highlighted that global supply chain diversification will benefit Indian manufacturers in select, export-oriented sectors such as electronics, pharma and chemicals. 

Generative artificial intelligence is increasingly top-of-mind for Indian funds as they are actively thinking about its impact across the PE landscape, including portfolio value creation, and internal fund operations, the report said.

Offering a progress report of the PE-VC landscape in 2023, the report said deal activity declined by about 35% from $62 billion in 2022 to $39 billion last year, returning to pre-covid-19 activity levels. 

This overall slowdown was primarily driven by global factors, including weakened investor sentiment and persistent macroeconomic headwinds, such as high interest rates, softening consumption, and geopolitical tensions.

The decline in India was largely driven by an about 60% reduction in VC investments due to their exposure to high-growth businesses with less established economic models. 

PE investments remained comparatively resilient, declining by a more moderate 20% as large-scale deal making worth $500 million and above persisted for high-quality assets.

Amid an overall decline in PE-VC investments, traditional sectors remained comparatively resilient, declining moderately by 15% “as investors continued to deploy capital for businesses with mature operating economics and secular growth characteristics.”

Healthcare investments hit a peak of $5.5 billion last year, driven by ongoing consolidation in multi-specialty providers and the emergence of scale single-specialty assets with attractive business profiles. 

Advanced manufacturing also saw relatively higher deals activity, with investments growing by 20% per annum over 2021–23, driven by global supply chain diversification and government incentives. 

Growing electric vehicle (EV) adoption led to numerous investment deals valued at $100 million and above in EV original equipment manufacturers and packaging.

Investments in software as a service declined by a steep 60% as assets that were well-funded, had strong operational economics, and had high valuations opted to stay out of the market. 

Meanwhile, investments in new-age tech decreased as investors increasingly prioritized the viability of the business model and proven economic performance.

Despite the slowdown in deal making, 2023 was a marquee year for Indian exits. 

Exit value soared by 15% from the previous year to $29 billion, accompanied by a jump in exit volume from 210 to 340.

Public market sales (or block trades) comprised half of exits by value, gaining from the increasingly deep Indian public markets that outperformed those of most major economies.

India accounted for 20% of all PE-VC investments last year, up from 15% in 2018. 

This has led to a rise in capital from both domestic and global/regional funds, which are now diversifying across various sectors and asset classes within India, the report said. 

As existing investors double down on India and new investors enter the market, India-based teams have expanded significantly; scale funds have almost doubled their teams since 2019.