India private equity landscape in the first half of 2021

Consequently, private equity investors have remained bullish on long-term prospects for India and doubled down in the first half of 2021 with a total invested value of $30 billion, a mammoth 120% increase over the first half of 2020 (excluding Jio). The sectors of consumer technology, IT/SaaS, banking/financial services/insurance (BFSI), and healthcare dominated the first half of 2021, contributing to 80% of the total investments.

Several salient themes from previous years continue to play out in India. First, growth equity momentum accelerated, with $15 billion in investments in the first half of 2021 alone. To put this in perspective, this was 50% higher than the whole of 2020 and three times the deal value in the first half of 2020. Second, the consumer technology and IT/SaaS sectors continued their strong momentum, growing by 225% and 375%, respectively. Third, outright buyouts (as percentage of total deals) continued to decline, especially as investment focus shifts heavily to consumer technology and SaaS, where minority investments are the norm.

At the same time, several new themes were seen in the first half of 2021. Firstly, deal volume spiked sharply, especially in the big ticket deals of $100 million and higher, which increased from 28 in the first half of 2020 to 73 in the first half of 2021. As a result, India Inc. minted 16 new unicorns in just the first half of 2021, already higher than the number of unicorns (12) in the entire year of 2020. Secondly, multiple sectors also saw notable shifts in interest across subsectors. Within IT, SaaS had a breakout year, with 10 investments exceeding $100 million. In BFSI, investors pivoted from non-banking financial companies (NBFCs) to focus on insurance, especially as Covid-19 continues to drive changes to risk perception. Lastly, two new themes emerged in exits: a rising interest in public listings and acquisitions of traditional companies by well-funded startups.

Within consumer technology investments, vertical e-commerce, edtech, fintech, and foodtech attracted the largest investments, driven by a continued investor interest in at-home services. Large deals (exceeding $100 million) across these four subsectors accounted for 25% of all large deals (by deal count) and minted several new unicorns: verticalized e-commerce (Pharmeasy, Urban Company), fintech (Cred, Zeta, Groww), edtech (upGrad), and foodtech (Licious). Consumer tech giants (BYJU’s, Swiggy, Zomato, and Pine Labs) also continued to aggressively raise funds, having cumulatively raised about $4 billion or approximately 14% of the total investments in the first half of 2021.

Investments in IT/SaaS also grew 375% year-on-year in the first half of 2021, as Covid-19 accelerated the need for digitisation and cloud adoption across firms. Investors doubled down on IT services assets (e.g., Blackstone continued to hold Mphasis, Apax bought out Infogain) and led 10 investments exceeding $100 million in SaaS, with notable investments across Chargebee, HighRadius, BrowserStack, Druva, Uniphore, and Eightfold AI.

Within BFSI, investor interest in insurance spiked, driven by a changed risk perception across individuals and businesses due to Covid-19. Investors are backing traditional insurers (with SBI Life and Star Health raising deals exceeding $100 million) as well as insurtechs (PolicyBazaar, Digit). The NBFC sector also continues to attract investments, with notable deals in Altico Capital, SREI Equipment Finance, and Five Star Business.

The healthcare sector leaped in the first half of 2021, with a year-over-year investment uptick of about 250% compared to 2020. Pharma/API manufacturing and contract research and development organizations (CRO, CDMO) sought maximum investor interest, with nine investments of $100 million and higher, driven by a large supply chain rebalancing that resulted in increased competitiveness of Indian manufacturers versus China.

Exit momentum also spiked in the first half of 2021, with a total exit value of $12 billion, four times the value of exits in the first half of 2020. The exit value so far this year is already higher than the entire exit value of 2020. Twenty percent of the total exit value, $2.5 billion, was driven by consumer technology companies, with exits for investors in Bigbasket, Zomato, Dream11, Nazara, Urban Company, and others. The first half of 2021 also saw the emergence of strategic acquisitions of traditional companies by their newer, well-funded counterparts, to build their offline presence (e.g. Aakash by BYJU’s), secure regulatory approvals (e.g. PMC by BharatPe) or expand into adjacencies (e.g. Thyrocare by Pharmeasy).

India’s strong public market sentiment has also made public listings a very attractive option for investors, who reaped significant gains from stellar listings (e.g., Zomato, Nazara, and Indigo Paints). We expect this exit momentum to continue to remain high for the rest of 2021, especially in the consumer technology sector, which is likely to see the IPOs of Paytm, Nykaa, and Urban Company.

These successful exits are a sign of healthy PE markets and will tremendously boost investor confidence. In the future, this is likely to spur further investments in consumer technology, SaaS and healthcare, driven also by the greater adoption of at-home services in education, e-commerce, and enterprise technology, and an increased focus on pharmaceutical companies, contract research, and contract manufacturing organizations.

Sriwatsan Krishnan and Aditya Shukla are partners at Bain & Company. Prabhav Kashyap is an associate partner at Bain & Company. They are leaders in the firm’s Private Equity practice and authored the ‘India Private Equity Report 2020’ and ‘India Private Equity Report 2021.’