There has been a notable surge in interest from global private equity (PE) firms and PE-backed 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 prevalent earlier.
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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 growth rate of 25%.
Indian IT firms are trading at a premium to their global counterparts due to their growth performance and potential, industry executives said, citing this as one of the reasons 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.
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“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 in IT services (2018-2023),” said Shobhit Jain, managing director and co-head of enterprise technology & services for investment banking, Avendus Capital. “Overall, the total value held by PE firms in the sector has quadrupled, going from $13 billion in 2013 to $55 billion today,” he added.
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HIG Capital-backed 3Pillar Global’s acquisition of Chenoa in September 2023 and Tailwind Capital-funded Onix’s purchase of Datamatica in October were among such deals in the past one year, Jain said. “This trend is evident and gaining strong prominence in minority investment situations as well. For example, a $50 million investment by US-based Brighton Park Capital in TheMathCompany; a minority stake acquisition in Celebal Technologies by US-based Norwest 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.
There has been a notable surge in interest from global private equity (PE) firms and PE-backed 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 prevalent earlier.
Elevate Your Tech Prowess with High-Value Skill Courses
Offering College
Course
Website
IIM Lucknow
IIML Executive Programme in FinTech, Banking & Applied Risk Management
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 growth rate of 25%.
Indian IT firms are trading at a premium to their global counterparts due to their growth performance and potential, industry executives said, citing this as one of the reasons 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.
ETtech
“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 in IT services (2018-2023),” said Shobhit Jain, managing director and co-head of enterprise technology & services for investment banking, Avendus Capital. “Overall, the total value held by PE firms in the sector has quadrupled, going from $13 billion in 2013 to $55 billion today,” he added.
Discover the stories of your interest
HIG Capital-backed 3Pillar Global’s acquisition of Chenoa in September 2023 and Tailwind Capital-funded Onix’s purchase of Datamatica in October were among such deals in the past one year, Jain said. “This trend is evident and gaining strong prominence in minority investment situations as well. For example, a $50 million investment by US-based Brighton Park Capital in TheMathCompany; a minority stake acquisition in Celebal Technologies by US-based Norwest 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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