Highlights: Impact of Covid-19 on the investment landscape

  • The first six months of 2020 was a tale of two quarters: the first quarter saw deal activity in line with 2019, and the second quarter was overshadowed by the impact of Covid-19
  • 2020 started with the continued investment momentum generated in 2019 - 51 deals were announced between January and March 2020, compared to 48 deals in the same period in 2019. The deal value, however, was noticeably lower, with a decline by 24% YoY [1] [2] [3]
  • With the onset of Covid-19 and the enforcement of lockdown measures across India, sponsors focused their attention to portfolio management
  • Supporting investee companies on liquidity conservation, maintenance and resumption of business operations was also key. In some cases, adaptations were required to navigate the environmental challenges exposed by the pandemic
  • With this shift in focus, and the impact of the environment on the performance of businesses, many deals were either abandoned, put on hold, or are being renegotiated
  • Q2 2020 registered a 45% decrease in deal volume and a 38% decrease in deal value compared to that of Q2 2019[3]

January – June 2020 PE activity in the Indian mid-market[3]

  • PE investment activity in India has been dominated by the series of investments in Jio Platforms, totalling c.$15.2bn (as of 30 June 2020)[4] driven by the prospects of the Indian digital infrastructure and services market, with Jio being strategically positioned to leverage and unlock the country’s digital ecosystem
  • In the mid-market segment ($15 - 500m), 83 deals worth $5.7bn (see graphs below) were announced in this period compared to 106 deals worth $8.1bn for the same period in 2019[3] – a noticeable shift in investment appetite

Source: Venture Intelligence Private Equity & Venture Capital Deals Database

  • The mid-market segment was dominated by growth / minority transactions - more than 80% of all transactions by number and c.74% by value in the first half of 2020 fell into this category[3] (see charts below)
  • As noticed in the data below, a clear drop can be seen in the buy-out transactions – with seven buy-out transactions in 2020 generating an average deal value of $110m ($176m in H1-2019)[3]
  • The first half of 2019 was, however, marked by two large buyout deals, AGS Health ($496m) and Essel Propack ($462m)[3]


January – June 2020 PE activity by sector

The cross-sector investment trends in 2020 have seen only a minor shift in investor preference – the two most active sectors were Financial Services and Consumer, Leisure and Retail contributing to c.45% of the deals[3].

The sector least impacted by the onset of Covid-19 was Healthcare, which saw 11 deals vs 13 in 2019 (-15%), and a 24% increase in deal value[3].  We believe that the strong macro-level tailwinds and positive outlook in the medium to long-term has benefited the sector.


Healthcare deals saw a minor decrease in deal activity (15% compared to 2019)[3]. Within the Healthcare and Life-sciences segment, we see pharmaceuticals as the least impacted segment and expect a significant uptick in deal activity, including fund raises.

The Pharma sector has been a beneficiary of Covid-19, and the sector valuations have positively re-rated, implying sector resilience and strong investor interest.

The recent spate of transactions point towards pick up in deal activity – with Carlyle’s $490m deal with Piramal[5] and KKR’s $415m deal with J B Chemicals[6] as evidence of the positive interest for this segment. These transactions showcase strong investor appetite and a willingness to take control to drive out-sized growth.

We also expect to see investor interests increase in API and intermediates segments, as both are indirect beneficiaries of the pharma sector and direct beneficiaries of the emerging geo-political environment, and the Government of India’s policy to encourage domestic production in these areas.

On the other hand, healthcare services businesses saw their revenues take a massive hit on account of lockdown, with volumes down between 60-85%. These same businesses are likely to see a strong bounce back as the lockdown eases and pent up demand for elective surgeries rise. So while the valuations have been subdued, we expect to see more opportunistic deal situations, as smaller hospitals could struggle because of rising operational costs, a lower margin environment and the need to realign capital structures.


The overall TMT sector saw a similar number of deals in 2020 compared to 2019, however there was a 46% decline in deal value. Half of the 15 deals in TMT were in the SaaS segment, which saw a 30% increase in deal value over the same time last year, with Postman's $150m fund- raise being the standout transaction for H1-2020[3]

SaaS-based firms helping with the digitization of small business and enabling remote workforce collaboration, are also seeing investor interest with a premium attached to them. Postman and Sirion Labs are examples of such firms funded recently[3].

Investments in IT Services had been fairly robust in the pre-Covid period, driven largely by the acquisition of digital capabilities by strategic sponsors. Going forward, we expect activity to bounce back in the next six to nine months as digital trends like cloud, DevOps and automation play out and cash-rich firms step-up acquisitions in a bid to quickly ramp up capabilities in specific practice areas.


Industrials witnessed a slower decline, with Covid-19 causing an increase in special situations and distress deals. Special situation transactions are picking up, even in the listed space, due to leverage / share pledge (Apollo Tyres – Warburg Pincus) and NCLT cases pending for one to two years finding resolution (Uttam Value Steels, Uttam Galva).

Logistics and supply chain services (both digital and otherwise) were the dominant segment within the sector, forming c.50% of the transactions. However, they too have lost momentum in 2020. Going forward, we expect fewer deals in conventional equity and cross-border transactions, at least until the Covid-19 situation stabilizes.


Whilst Consumer, Leisure & Retail has been one of the most active sectors in terms of deal share, it has seen a (36% decrease compared to 2019). Like in 2019 (when more than 75% of the transactions were in the online segment), all but three deals in 2020 were in consumer internet; the three largest deals in this period were with Swiggy, Zomato and Bounce[3].

We expect that businesses operating in the hygiene, health / wellness and essential goods segment, and with D2C business models, will see continued interest from investors. Retail and leisure have been heavily impacted during Covid-19 and are likely to see limited activity in the coming quarters, with existing investors providing additional capital to their portfolio companies. 


Financial Services saw a >40% decline in transactions for the period. This reduced activity is expected to continue as the balance sheet quality of the sector stabilises, and while recovery across relevant segments becomes clearer.

Financial services - and fintech, in particular - is expected to witness some near term headwinds on the PE financing front. Lending-based business models continue to be deeply impacted by the expected decline in asset quality owing to the protracted lock-downs.

Specific areas of fintech likely to generate investor interest include online payment gateways/aggregators, bank-tech platforms and merchant management plays, as digital access becomes critical for most 'mom-and-pop' stores.


Within Services, Ed-tech continues to witness strong investor interest with c.$700m being raised across five transactions in 2020, with Byjus being the largest contributor by raising $500m[3]. PE investments are expected to gain further momentum with the paradigm shift to online education during the pandemic – specifically in the K-12 focused segment.



Emerging trends

  • The India Government’s recent Press Note stipulates that approval is required for investments originating from countries sharing a land border with India[7]. This is expected to have a significant impact on investment levels from China – most significantly on the growth capital raising efforts of early stage and technology-based businesses
  • We anticipate that ‘Covid-19 beneficiary’ and ‘Covid-proof’ businesses will, at least until there is greater clarity on the recovery path for the overall economy, attract the majority of classic growth capital
  • These businesses will also see limited (or in certain cases even positive) effects on M&A and buy-out activity over the next couple of quarters. Some specific themes that we believe are in focus for many investors include: 
    • Pharmaceuticals
    • EdTech
    • Online gaming & digital content
    • Health and hygiene products
    • Essential consumer packaged goods
    • Online brands / direct to consumer (D2C) businesses
    • Telecoms
    • Beneficiaries from international supply chain disruptions - particularly China
  • We expect that sectors impacted by Covid-19 in both the near as well as the medium term (e.g. Travel & Hospitality, Retail, Automotive, Alternative Lending / NBFC, Discretionary Consumer) will see low levels of growth equity investment and a very significant drop in M&A values
  • In these sectors we expect the majority of the activity to centre around:
    • internal emerging funding rounds by existing investors
    • mezzanine / structured funding deals (debt or preferred equity with guaranteed return and equity upside via warrants) if the investment is led by a new investor and;
    • distressed M&A situations with stock for stock mergers
  • In sectors more likely to bounce-back post lockdown (e.g. IT Services, Healthcare Services), we expect that both M&A and growth equity funding levels will continue to be subdued until the end of 2020
  • Since most of these businesses have the ability to tide over the period of Covid-19’s impact (typically several quarters), they are unlikely to pursue M&A or raise growth capital in this challenging market environment
  • In these sectors, a valuation expectation mismatch between buyer and seller is also likely to mute near-term deal activity, and it is likely that in these sectors this will only start to bounce back in 2021
  • In light of the uncertain prospects for many businesses, several transactions that were being negotiated as ‘equity’ transactions are likely to end up as structured debt investments


[1] For this analysis, we have considered transactions with value between $15 – 500m and excluded some sectors (Infrastructure, Real Estate, Energy, Mining and Natural Resources)

[2] Calendar year has been used for the purposes of all calculations (2020 refers to CY2020, 2019 refers to CY2019 and so on)

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

[4] Bombay Stock Exchange: Press release by Reliance Industries on 19 June 2020 https://www.bseindia.com/xml-data/corpfiling/AttachHis/715b628f-8f44-413a-b509-2943a2dd3f22.pdf

[5] Source: Carlyle press release [27 June 2020] - Carlyle and Piramal Pharma Sign Agreement on a 20% Strategic Growth Investment https://www.carlyle.com/media-room/news-release-archive/carlyle-and-piramal-pharma-sign-agreement-20-strategic-growth

[6] Source: Economic Times [3 July 20120] - KKR to buy 54% stake in JB Chemicals for Rs 3,100 crore https://economictimes.indiatimes.com/markets/stocks/news/kkr-to-buy-jb-chemicals-pharma-in-500-million-deal/articleshow/76755297.cms.  Please note this transaction was announced on 2 July, 2020 and not included in the deal statistics.

[7] Source: Government of India, Ministry of Commerce & Industry, Department for Promotion of Industry and Internal Trade, FDI Policy Section, Press Note No. 3(2020 Series)