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Education sector, known for its recession-proof and non-cyclical business nature , may emerge as the favourite deal

scouring ground for venture capital firms if the record of exit multiples is going to be a pointer. Education is still not th at prolific in terms of deal volume but it has delivered the highest return mult iples in its exits. According to a recent study by IDG Ventures, education sector gave the highest r eturn multiple of 7.4X in venture capital exits made during 2004-2009. Out of the total 102 VC exits in the five-year period (2004-2009), IT services m ade the most number of exits at 22 with return multiple of 4.15X. This was follo wed by BPO/ KPO segment with 19 exits at an exit multiple of 4.1X. Though there were only five exits, education topped the list with 7.2X return. Biotech firms remain at the end of the ladder with 2 exits at 1.1X return multiple. Education, which witnessed deals worth $300 million in 2004-2009, has a potentia l for $2-billion investment in the next five years in India. Nearly 81% of PE inves tors in India want to invest in education but only $300 million has been investe d so far. Currently, PEs can only participate indirectly due to ownership restri ctions for schools and higher education institutions. The government must lift k ey regulatory hurdles to spur PE investment, the study said. According to VCCEdge data, since 2000, 57 PE/VC deals worth $512 million took pl ace in the education sector. Till date in 2010, about six deals worth $118 milli on have been inked. In 2009, 10 deals worth $128 million were struck in educatio n. The biggest deal in terms of value was Premjiinvest s $43-million investment in M anipal Universal Learning. Last month, Reliance Equity Advisors (India) Ltd, the private equity arm of Reliance Capital Ltd, invested Rs 100 crore in Pathways W orld School. As per the exit valuation, education sector stands at the top with an average of $367 million, which is ahead of financial services with an average exit valuati on of $318.2 million. Though software sector leads with the higher number of exi ts and higher exit multiples, it could make an exit valuation of an average of $ 28.8 million, which is the lowest across sectors. BPO/KPO ($229 million), engine ering ($192 million) and retail ($190 million) also lead the average exit valuat ions. In top exits by sector, by value, IT services stands first with exits such as Mindtree Consulting IPO ($360 million), followed by BPO (Firstsource IPO-$60 5 million), software (Excelsoft acquisition by DE Shaw-$88 million), internet (N aukri IPO-$310 million), mobile VAS (Onmobile IPO-$450 million) and education (E ducomp IPO-$250 million). During 2004-2009, there were about 114 VC exits of which 62 were M&A deals, 15 I PO and 36 secondary sale/buybacks. There is an average exit multiple of 4.63X a nd an average IRR of 40.15%. The year 2007 witnessed maximum number of VC exits at 33 with an average multiple of 5.9X. And, 2008 saw the lowest number at eight exits with highest return multiple of 21X. In 2009, 13 exits were made at an av erage of 2.8X. During 2004-2009, 60 exits were made through strategic sale (2.8X), 22 through s econdary sale (9.4X), 16 through buyback (2.7X) and 15 through IPO (4.2X). And, 70% exits generated under 4X returns. About 28 exits were made at below 2X retur ns, 19 were below 2-4X range, 10 were in the 4-6X range. About 2-3 each exits we re made in 6-8X, 8-10x, 10-16X and above 16X return multiples. As per valuation distribution, 38% of exits were made at above $80 million valuation. About 17 ex its were made in the $100-500 million range while about six exits were in the ab ove $500-million range. About 39 companies were acquired by domestic corporates (2.4X), 37 companies were bought by foreign corporates (5.8X) and PE/VC firms ac quired about 15 companies (7X).