Unicorns are set to become more scarce as the funding winter persists. Quarterly data on deals suggests that the heyday of private equity investments may be a thing of the past. In the September quarter of 2023, there were a total of 40 deals valued at $1.7 billion, representing a 30% decline in value. Private equity investors are currently more focused on exiting existing businesses rather than investing in new ones.
However, investor interest remains strong in the banking and financial services sector. In the last quarter, there were a total of 30 private equity deals in this sector, with a cumulative value of $566 million. Fintech accounted for 30% of the deal volumes, although there was a sequential dip in value and volume. Banking and non-bank financial companies dominate in terms of values, accounting for a 77% share of overall investments.
According to the Grant Thornton Bharat Financial Services Dealtracker Report, there has been a 23% decline in volumes compared to the previous quarter, with 52 deals recorded. However, the slowdown is only seen in private markets, as India continues to outperform other emerging markets in public markets. Investors are currently interested in credit-based financial companies with strong profitability indicators, but they are still hesitant to make new investments until they have more confidence.
Vivek Iyer, Partner and National Leader of Financial Services Risk Advisory at Grant Thornton Bharat, commented on the evolving investment trend, pointing out that private equity funds are focusing on primary investments in fintech, banks, and non-banking financial companies (NBFCs), particularly in areas where capital defines growth strategy.
It is clear that investors are now prioritizing profitability and sustainability of business models. Grant Thornton reports that investors are no longer solely focused on growth and valuations, but instead are seeking clear and achievable paths to profitability.
In terms of mergers and acquisitions, there were 10 deals totaling $1.1 billion. While volumes decreased 9% compared to the previous quarter, values saw a significant surge of 2047%. Domestic mergers accounted for 60% of the volumes, while cross-border transactions, particularly in the inbound sector, contributed to 60% of the values. The top deal was Rapyd Financial Networks Ltd.’s acquisition of PayU Payments Pvt Ltd for $610 million.
In the private equity landscape, the Grant Thornton report highlights the increasing investor interest in fintech, banking, and non-banking financial companies (NBFCs). In the last quarter, there were a total of 30 deals in the private equity sector, with a cumulative value of $566 million. This represents a decline of 27% and 76% in volumes and values, respectively, compared to the previous quarter. Fintech accounted for 30% of the deal volumes, while banking and NBFCs took center stage in terms of values, contributing a 77% share. The top deal in the private equity landscape was Bain Capital’s investment of $176 million. Most private equity funds are currently focusing on existing investments rather than pursuing new acquisitions.
In terms of initial public offerings (IPOs), two were launched in the last quarter, collectively valued at $186 million. This is a significant change compared to the previous quarter, which saw no IPOs. Additionally, there were three Qualified Institutional Placements (QIPs) totaling an impressive $1.2 billion. The banking sector played a dominant role in the QIP market, contributing 54% to the overall values for the quarter. This increase in IPO and QIP activity reflects growing investor appetite and interest in the sector.
Global investors are increasingly interested in financial services, particularly lending-focused businesses, due to higher global interest rates. Key areas for credit growth in India include affordable housing, micro, small and medium enterprises (MSMEs), and education. The insurance sector is also expected to experience growth with regulatory changes and the adoption of global standards. However, substantial investments are yet to come. Fintech remains an attractive sector for investors, but data privacy regulations, such as the DPDP Act, 2023, will significantly impact the sector and prompt a re-evaluation of operational strategies.