Indian alternatives – Investing and buyout trends and the role of policy

The Indian alternatives industry has grown at a rapid pace of over 30% CAGR over the last 4-5 years, making it one of the fastest growing markets for alternative assets globally. During the initial years, India was primarily a market for growth investments with funds restricting their exposure to minority stakes and smaller ticket size investments. However, over the past 4-5 years there has been a change in the investment mix as value and number of buyout deals have increased significantly, which in turn has led to deals becoming larger and more complex. Share of buyouts by dollar value grew from around 10% at the beginning of the previous decade to over 25% of the total PE/VC investment pie in 2021. The emergence of the Buyout Strategy has been one of the major drivers of hyper-growth in Indian PE/VC investments post 2015.

In the past decade, buyouts have recorded a 10-fold increase in deal value and in our view, is one of the indicators of India’s maturing PE/VC ecosystem. However, the past four years stand out in terms of buyout activity, with annual buyout investment value crossing the $10 billion mark and deal count rising to more than 50 (does not include asset classes Infrastructure and Real Estate).

In these last four years, not only has the buyout deal count increased but also the average buyout deal size has increased significantly, signalling the growing confidence of PE/VC investors to deploy larger sums of capital in complex transactions. Technology, financial services, pharmaceuticals, and consumer and healthcare have been the top sectors for buyouts.

Factors that are contributing to this rise in buyout deals include:

  • Succession-related issues in family-owned businesses and promoter willingness to mentor the business while keeping minority investment
  • Companies/conglomerates hiving off non-core businesses or monetizing assets to pare debt
  • Growing acceptance of partnership with PE ownership as a successful model for value creation in homegrown / family-run businesses
  • Significant increase in the number of VC-backed companies, whereby financial investors together hold >51% equity after four-to-five rounds of funding
  • Buyouts are also helping improve the exit activity as PE funds gain more control over the exit process

The successful mega exits by PE funds with controlling stakes in deals like KKR’s exit from Alliance Tyres and Gland Pharma, Apax’s exit from iGate, Blackstone’s exit from Intelenet Global Services and other similar deals 3-4 years ago bolstered confidence in the buyout strategy. Amongst active Indian investors, there is now strong belief that Buyout is a good strategy to deploy large sums of capital in strategically structured investments where well-planned value creation levers can generate multi-bagger returns in the billions of dollars, making the strategy attractive for PE funds that draw capital from large global/regional / India dedicated pools of capital.

Further PE funds bring other advantages to the table as well, like:

  • In certain export-oriented sectors like technology, companies get recognized in their customer markets like the US because of their association with a marquee PE firm. And in some cases, the fund leverages its global portfolio to generate new business.
  • Attracting high-quality professional talent gets amplified under PE ownership, wherein PE funds with their ability to align shareholder wealth goals with those of top management, are able to rope in top-quality talent from industry / competitors.

These attributes have also given rise to the number of PE funds that are building businesses through platform plays. This platform plays start with an initial acquisition which serves as the foundation for rolling -up other companies in the same industry.

Role of Policy

The Government’s policy reforms have been an underlying enabler for the growing confidence of PE/VC funds to invest ever-increasing amounts of capital in India. The Government’s focus on improving the ease of doing business through measures such as the Insolvency and Bankruptcy Code (IBC), corporate tax reforms, GST, and streamlining of the labour codes has not only helped buyouts become more manageable but also more value accretive.

Continuing liberalisation of the FDI regime across a wide range of sectors including agriculture, defence, telecommunications services and the insurance sector has boosted India’s image as a preferred destination for foreign investment, with foreign investors now having unrestricted access to many industry sectors. These in conjunction with policies such as Make in India, PLI scheme, REITs, InvITs etc. are attracting large global capital pools to increase their allocation towards the Indian market.


As the Indian PE/VC market grows and continues to mature, we expect Buyouts to continue being one of the mainstay strategies for large PE investors. For the rest of 2022, we expect the rise in market volatility on account of recent geopolitical events to play in favour of Buyout funds, as the path to raising equity capital from the markets will become less predictable and valuations are also expected to correct. As long as the underlying India story remains intact, the Buyout strategy is expected to grow from strength to strength.

The writer is Partner – M&A & National Leader – Private Equity Services, EY)

(The one-stop destination for MSME, ET RISE provides news, views and analysis around GST, Exports, Funding, Policy and small business management.)

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