2021 trends - executive summary:

  • Covid-19 recovery’ and ‘digital’ have been the key themes for transactions in 2021. On the recovery front, the rebound in deal values seen in H2 2020 continues, with H1 2021 now higher than the total deal value for 2020 – an indication that global excess liquidity, as well as multiple measures taken by the Indian government, have taken the Indian public and private financial markets to record new highs. Although the country was hit badly in Q2 2021 by the second wave of Covid-19[4], we observed a quick recovery commencing at the end of June 21, and now see deal momentum picking up further[5]
  • In the digital space, 16 companies were added to the list of unicorns in H1 2021, compared to 11 companies in the whole of 2020[6] (see list below), with high traction driven by digitally-accelerated sectors, such as fintech, edtech and healthtech. This has been driven by the all-time highs levels of digital adoption in India, which started picking up with the first-wave lockdown. We expect this to continue through 2021 - as the pandemic seems to have driven digital adoption much faster than any discount-driven growth achieved by digital players in the past
  • This widespread digital adoption has also meant companies have been able to attract large primary investments, underpinned by the massive opportunity and availability of sizeable sub-sector market leaders. The number of growth-stage / late-stage funding transactions between $100–500m has doubled to 38 in H1 2021, compared to 18 in H1 2020[7]
  • Additionally, while sovereign wealth funds and pension funds have historically preferred to participate in larger-size deals, they are now increasingly investing in mid-market transactions due to a younger and increasingly digital-friendly population
    • This is reflected in investment levels by sovereign wealth funds– $1.8bn in H1 2021 versus $0.8bn in the whole of 2020[8] – and we expect this trend to continue, driven by higher yields in direct investments
  • Tiger Global, Sequoia Capital and Falcon Edge Capital were the three most active investors in H1 2021 and drove c.30% of all mid-market transactions[9]

Below is a summary of the companies that achieved unicorn status in 2021:

Source: India's unicorn tally touches 50, [10]

H1 2021 private equity activity

  • The first half of 2021 witnessed a sharp uptick in private equity transaction volumes (68%) and value (103%)[11], versus the same period in 2020[12] – as shown in charts below. This increase in activity was due to:
    • Delayed deal launches or deals put on hold in 2020
    • Signs of quicker economic recovery due to waning Covid-19 cases and stimulus proposed in the budget for 2021[13]
    • Pressure on financial sponsors to deploy ageing dry powder
    • Excess liquidity and overall buoyancy in global financial markets

Source: Venture Intelligence Private Equity & Venture Capital Deals Database[14]

  • Heightened liquidity levels globally led to massive inflows of foreign investment in both public markets and private markets in India - net foreign investment inflows of $11.5bn in Jan-Apr 2021 compared to net outflow of $3.5bn in Jan-Apr 2020[15]
  • The two most active sectors in 2020 were Financial Services and Consumer, Leisure & Retail, contributing to c.53% of deals[16], which reflected the significant growth opportunity from the rapid adoption of financial and digital services mentioned above. This trend has continued, with the deal value in these two sectors growing 3-4x in H1 2021 compared to H1 2020[17]
  • Private equity buyouts continued to be less frequent with investor confidence recovering slowly. However, closed transaction values have been significantly larger (c.150% increase in average deal size compared to H1 2020[18])
  • EdTech, a crowd favourite in 2020, saw a slowdown in investments in H1 2021[19] due to aggressive consolidation by strategic acquirers

Source: Venture Intelligence Private Equity & Venture Capital Deals Database[20]