In the past year private equity (PE) deal making was very robust in India. The amount invested during 2006 was three times that during the year before, with some 60 per cent flowing in from foreign players. This shows increased interest in India as a business destination. In 2005, PE firms invested $2.03 billion (Rs 9,135 crore).

The final quarter witnessed PE companies investing $2.6 billion across 67 deals. The year witnessed several large global PE companies with appetite for large deals making their first investments in India. There were 26 deals involving investments of $50 million during 2006 compared to just nine such deals in the previous year.

In term of significant investment during the year, KKR's (Kohlberg Kravis Roberts) acquisition of 85 per cent in the Indian software arm of Flextronics International for about $900 million (Rs 4,050 crore) came right at the top.

Others who made it to the top of the value list were Providence, which struck a $400-million deal with telecom service provider Idea, and Temasek whose two deals included the 9.9 per cent stake it picked up in Tata Teleservices.

The other noteworthy PE firms that did shopping were Warburg Pincus, ChrysCapital, Citigroup, and Spinnaker Capital. Warburg Pincus, the most successful PE fund in the country, was among the top spenders with investments in hospitality, coal & mining and media companies.

However, in the ranking, it's neck and neck between ChrysCapital and GLG Partners. Unlike Warburg and ChrysCapital, which struck multiple deals across sectors, GLG Partners focused on a single deal - its investment in Idea.

Other firms that invested more than $100 million through one or more PE deals included Actis, Farallon, Morgan Stanley, Citigroup, Xander Real Estate, Silver Peak Investments, Sequoia Capital, Abu Dhabi Investment Authority, Olympus Capital and Siachen Capital. Actis invested through several deals in Nilgiris, Phoenix Lamps, Paras Pharma.

The size of deals has grown from around $8 million four years ago to an average of $25 million today. Information Technology and IT-Enabled Services (IT & ITES) continued to remain the favourite sector among PE investors during 2006, accounting for $1.47 billion (Rs 6,615 crore), from 87 deals, up from 46 deals in 2005.

However, PE investment in listed companies fell due to a surge in valuations. It came down to 22 per cent of total deals in 2006, from 34 per cent a year earlier. With markets rising to all-time highs resulting in expensive valuations, these funds are skeptical about investing liberally. Also, most PE funds are unwilling to scale down their investment, thus diverting the funds to other investment options.

The top sectors in focus also changed last year. While the top five sectors in terms of strategic M&A by amount invested in 2005 were telecom, energy, IT & ITeS, steel and chemicals & plastics. Last year was clearly dominated by IT & ITeS followed by pharma, healthcare & biotech. The real estate sector was also among the top picks.

Last year has been an extraordinary year for private equity. The value of announced deals hit a record $700 billion worldwide. PE investment in India also broke through the global average of 20 per cent of investment as a proportion of total merger & acquisition deals (M&A). Last year, 28 per cent of the total deals in India took the M&A route. PE funds also, for the first time, overtook Indian companies - which struck domestic M&A deals worth $4.99 billion, in their investments in the country.

India's attractiveness to the private equity investors is not merely because of its sizzling economy. Indian companies also have the highest return on equity in Asia, about 21 per cent, compared with 9 per cent for China. However, China has attracted close to $12 billion PE investments in 2006.

The current PE investment landscape in India is much different from the initial venture capital setting during mid to late 1990s. In the initial stages, the venture capital market started with a focus on seed or start-up funding and the average investments size small.

According to Grant Thornton, the market picked up during the year 2000, which was the first year to see more than a billion dollar in venture capital investment.