Regional Headline :

Global PEs Eye a Bigger Pie of India’s Software Services Sector

Total value held by PE firms in Indian IT quadruples to $55b from $13b in 2013: Expert

Beena. Parmar@timesgroup.com

Bengaluru: There has been a notable surge in interest from global private equity (PE) firms and PEbacked entities in acquiring Indian information technology (IT) and software services companies.

This is fuelled by a substantial increase in growth capital investments within the IT services sector by global PE funds, which was not prevalentearlier.

The number of PE firms holding majority stake in Indian IT services companies had doubled between 2019 and 2022 to more than 50, as per Avendus Capital data. According to more recent data from GrowthPal, an M&A deal sourcing platform, inbound deals from global investors betting on Indian firms rose 35% in 2023, faster than the previous year’s growthrate of 25%.

IndianIT firmsare tradingatapremium to their global counterparts due to their growth performance and potential, industry executives said, citing thisasoneof thereasons

AS YOU SOW.

HOW THEY STACK UP Number of Deals

in2013to$55billion today,” headded.

HIG Capital-backed 3Pillar Global's acquisition of Chenoa in September 2023 and Tailwind Capitalfunded Onix’s purchase of Datamatica in October were among such

F dealsinthe past one year, Jain sai £ “This trend is evident and gaini

2 strong prominence in minority in3 vestment situations as well. For S example, a $50 million investment 2 by US-based Brighton Park Capital g in TheMathCompany; a minority & stake acquisition in Celebal Tech Inbound deals (global in

India) *PE deals & M&A Deals

Inbound deals %

I 35« I 25«

'SOURCE: GROWTHPAL, VC-BACKED M&A DEAL SOURCING PLATFORM

for the PE interest. Also, the startup space has become risky due to corporate governance and sustainability issues, leading to increased interest in the IT space where — even though these deals involve small and midsize firms — the models are time tested.

“While only around 10 PE funds held majority investments in the IT

services sector between 2008 and 2013, today, this number has jumped to over 50 funds with majority stake inITservices(2018-2023),” said Shobhit Jain, managing director and cohead of enterprisetechnology &services for investment banking, Avendus Capital. “Overall, the total value held by PE firms in the sector has quadrupled, going from $13 billion

m2023 M2022 &

Z nologies by US-based Norwest 7 Venture Partners.”

HIG Capital, Tailwind Capital and Brighton Park Capital did not respond to emails seeking comment.

In 2023, there was a decline in M&A activities across all sectors due to valuation mismatches, geopolitical situations, higher interest rates on deal financing, funding

constraints and regulatory risks. However, the IT services sector bucked the trend.

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